REVISION PARTNER 1

QUESTIONS
TOPIC 1
INTRODUCTION TO ACCOUNTING
QUESTION 1
(a) Explain how the prudence concept might be applied to:
(i) The valuation of inventory.
(ii) The valuation of receivables.
(iii) The valuation of shares held as investments quoted on the securities exchange.
(iv) The valuation of land and buildings.

November 2014 Question One A

QUESTION 2
(a) Discuss five principles of the code of ethics that govern the professional conduct of accountants.
May 2014 Question Five A

QUESTION 3
a) Discuss five users of accounting information clearly indicating their information needs

May 2013 Question Two A

QUESTION 4
a) Explain the following accounting concepts.
i) Consistency
ii) Materiality
b) Distinguish between the following
i. “Cash basis of accounting” and “accrual basis of accounting”
November 2012 Question Five A and B (I)

QUESTION 5
a) Explain the following accounting assumptions
i) Accrual
ii) Going concern
May 2011 Question Three A

QUESTION 6
a) Explain four qualities of useful accounting information with reference to the International Account
May 2011 Question Five A

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 2
TOPIC 2
RECORDING TRANSACTIONS

QUESTION 1
(a) Identify five benefits of customized accounting software.
November 2014 Question Five A

QUESTION 2
b) Highlight four accounting tasks performed by accounting software packages
November 2013 Question Five B

QUESTION 3
a) Highlight six applications of accounting software packages.

May 2012 Question Five A

QUESTION 4
c) Explain five challenges facing organizations that use computerized accounting software

December 2011 Question Five C

Being human, we can

only receive infinite
truth in finite doses.

Norman Grubb.

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 3
TOPIC 3
ACCOUNTING FOR ASSETS AND LIABILITIES
QUESTION 1
(b) The following is a summary of the cash book of Azimio Ltd. for the year ended 31 May 2014:
Cash book
Sh.000 Sh.000
Balance brought forward 805 Payments 146,203
Receipts 145,720 Balance carried forward 322
146,525 146,525

Subsequent investigations reveal that:

1. A page of the receipt side of the cash book has been under cast by Sh.200, 000.
2. The following transactions appearing on the bank statement have not yet been entered in the cash
book:
∑ Dividend received on a trade investment Sh.1, 147,000.
∑ Hire purchase repayments for 12 months at Sh.55, 000 per month.
∑ Interest for the half year to 30 November 2014 on a loan of Sh.20, 000,000 at 11 percent per
annum.
3. Bank charges of Sh. 143,000 shown on the bank statement have not yet been entered in the cash
book.
4. A cheque received from a customer for Sh.180, 000 was returned by the bank unpaid and no entry
has been made in the cash book for this transaction.
5. The company owes Sh.430, 000 for electricity consumed in the month of May 2014.
6. A cheque for Sh.82, 000 has been debited to the company's account in error by the bank.
7. A cheque drawn for Sh.98, 000 has been entered in the cash book as Sh.89, 000 and another one-
drawn for Sh.230, 000 has been entered as a receipt.
8. A transposition error occurred in the opening balance of the cash book. The opening balance
should have been brought down as Sh.850, 000 instead of Sh.805, 000.
9. Cheques paid to suppliers totalling Sh.630, 000 have not yet been presented at the bank, while
deposits totaling Sh.580, 000 made on 31 May 2014 have not yet been credited to the company's
account.
10. The balance as per the bank statement is an overdraft of Sh.870, 000.

Required:
(i) Adjusted cash book balance.
(ii) Bank reconciliation statement as at 31 May 2014.
November 2014 Question One B

QUESTION 2
(a) The property, plant and equipment balances of Matatizo Ltd. comprised the following as at 1
January 2013:
Cost Depreciation Net book value
Sh. ‘000’ Sh. ‘000’ Sh. ‘000’
Freehold land 30,000 - 30,000
Buildings 38,520 - 38,520
Plant and machinery 70,200 37,812 32,388
Motor vehicles 37,800 23,040 14,760

The company uses the straight line method of depreciation on assets as follows:
• 10% per annum for plant and machinery.
• 20% per annum for motor vehicles.

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 4
Additional information:
1. It is the company's policy to make a depreciation charge proportionate to the period of usage of the
asset.
2. An item of machinery bought on 1 July 2009 for Sh.10,080.000 was sold on 1 April 2013 at
Sh.6,000,000.
3. From the year ended 31 December 2013, the management of the company decided to charge
depreciation on buildings at a rate of 2.5% per annum. The buildings were all completed on 1 July
2009.
4. On 1 January 2013, a vehicle purchased on 1 May 2010 for Sh.12,600,000 was traded in at a value
of Sh.7,320,000 in part exchange for a new vehicle costing Sh.18,000,000.
5. Included in machinery is an old machine which originally cost Sh.13, 500,000 and which was
already fully depreciated and not expected to yield any material amount on either use or resale.
6. On 30 June 2013, a machine costing Sh.13, 500,000 was purchased from a vendor who had used it
for three years. The vendor had bought the machine at Sh.18,000,000. Another machine costing
Sh.10,500,000 was purchased on 1 August 2013.

Required:
A schedule showing the movement of property, plant and equipment for the year ended 31 December
2013.
May 2014 Question Three A

QUESTION 3
a) The following balances were extracted from the books of Furahia Enterprises for the month of
September 2013:
Sh.
Debit balance (1 September 2013): Sales ledger 14,280,000
Purchases ledger 1,920,000
Credit balance (1 September 2013): Sales ledger 1,680,000
Purchases ledger 6,720,000
Credit notes received from suppliers 1,860,000
Debt collection expenses 480,000
Interest charged on customers' overdue accounts 384,000
Customers dishonoured cheques 1,260,000
Bad debts written off 720,000
Receipts from customers 1,280,000
Interest charged by creditors on overdue accounts^ 588,000
Payment to creditors 7,680,000
Contra settlements 390,000
Credit notes issued to customers 270,000
Credit sales 17,340,000
Cash sales 3,240,000
Cash purchases 2,160,000
Credit purchases 7,440,000
Discounts, allowed 1,080,000
Discounts received 690,000
Balances as at 30 September 2013:
Sales ledger (credit) 1,110,000
Purchases ledger (debit) 1,050,000
Required;
i) Sales ledger control account for the month ended 30 September 2013.
ii) Purchases ledger control account for the month ended 30 September

November 2013 Question Five C

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

 REVISION PARTNER 5
QUESTION 4
(a) Distinguish between ‘purchased goodwill’ and ‘non-purchased goodwill’

November 2013 Question Three A

QUESTION 5
a) Explain the following methods of measurement of elements in financial statements:
i) Historical cost.
ii) Net realisable value.
iii) Present value.

November 2013 Question Two A

QUESTION 6
b) You have just been employed by Best Way Ltd as a trainee accountant. Your first exercise is to
check the transactions in the company’s cash book, check entries in the bank statement, update
the cash book and make any amendments as necessary after which you will prepare a bank
reconciliation statement at the end of the month.

The company’s cash book and bank statement for the month of March 2013 are provided below;-
Cash Book (Bank column only)
Date Details Amount Date Details Amount
2013 ‘000’ 2013 ‘000’
1 March Balance b/d 4,865 2 March Salama Insurance 187.5
1 March Devco. & Co. Ltd 622.5 2 March Hellen Cheque number
5 March J. Karanja 470 4100 515
8 March P. otieno 375 2 March Orchard Ltd cheque
10 March Huge Ltd 1,100 number 4101 787.5
18 March Tiny Ltd 162.5 8 March Buki Garage –cheque
27 March R. Nafula 1,300 number 4102 527.5
30 March David and Partners 205 9 March Value Sure Finance 300
13 March Joseph Baraka – cheque
number 4103 55
20 March Good Samaritan Ltd –
Cheque number 4104 342
27 March Kenya Power Ltd – cheque
number 4105 675
31 March Balance carried down 5,710
- -
9,100 9,100
1 April Balance b/d 5,710

Best Way Limited

Bank statement
Date: 31 March 2013
Date Details Debit Credit Balance
2013 Sh. ‘000’ Sh. ‘000’ Sh. ‘000’
1 March Balance - - 4,865 CR
2 March Cheques - 622.5 5,487.5 CR
4 March Salama Insurance 187.5 - 5,300 CR
5 March Cheque number 4101 787.5 - 4,512.5 CR
6 March J. Karanja - 470 4,982.5 CR
9 March P. Otieno - 375 5,357.5 CR
9 March Cheque number 4102 527.5 - 4,830 CR
12 March Cheques - 1100 5,930 CR

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 6
12 March Value Sure Finance 300 - 5,630 CR
20 March Cheques - 162.5 5,792.5 CR
28 March Kenya Power 675 - 5,117.5 CR
30 March Skyline Ltd 230 5,347.5 CR
31 March Bank charges 137.5 - 5,210 CR
31 March Bottom line Co. Ltd 2,500 - 2,710 CR

Required;
A bank reconciliation statement as at 31 March 2013
May 2013 Question Two B

QUESTION 7
b) Jabali Ltd. started its operations on 1 January 2008. The company acquired several items of plant
for its use. The amounts for the plant acquisitions, disposals and depreciation far the years 2008, 2009
and 2010 are shown below.

The amounts for the year 2011 have not yet been computed.
Plant movement extracts for the years ended:

2008 2009 2010 2011

Sh'000' Sh'000' Sh'000' Sh'000'
Plant at cost 80,000 80,000 90,000 ?
Accumulated depreciation (16,000) (28,800) (36,700) ?
Net book value 64,000 51,200 53,300 ?

Additional information:
1. Disposals took place at the beginning of the financial years as follows:

Date of disposal for the year ended Plant cost Sales

31 December proceeds
Sh'000' Sh'000'
Disposal of plant A 2010 15,000 8,000
Disposal of plant B 2011 30,000 21,000

2. Plant A and plant B were sold and replaced on the same date when plant C and plant D were
acquired. Plant D cost Sh.50 million while the value of plant C is to be derived.
3. Depreciation is charged at 20% on reducing balance.

Required:
(i) Extract of the plant movement schedule for the years ended 200S. 2009, 2010 and 2011
(ii) Profit or loss arising on disposal of plant A and plant B.
May 2012 Question Two B

QUESTION 8
b) Pata Transport Limited (PTL) was incorporated on 1 June 2006 and on the same day bought its first
lorry; KB099S for Sh. 9,000,000.

On 1 April 2007, the company bought its second lorry KB 120T FOR Sh 12,000,000.
On 1 June 2008, the company bought a third lorry KB 340X for Sh. 6,000,000.

On 1 October 2008, lorry KB 099S was involved in an accident and was written off. The insurance
compensation paid to PTL by the insurers was Sh. 2,600,000.

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 7
On 31 December 2009,lorry KB 340X broke down and was traded in with a new lorry registration KB
419Y valued at Sh. 8,000,000.PTL; paid cash amounting to Sh. 5,400,000 for the lorry.

On 1 Apri12010, a van KB 890B was purchased for Sh 4,800,000.

Depreciation on motor vehicles is to be provided at the rate of 10% per annum on a straight line basis.
The policy of the company is to provide depreciation on a pro rata basis.

On 1 January 2009, the company decided to change its depreciation rate from 10% to 15% per annum.
The change was effected on motor vehicles that were in use retrospectively; that is from the year of
purchase. An adjusting entry was to be made in the accounts for the year ended 31 December 2009.
All lorries were comprehensively insured.

Assume the year end for PTL IS 31 December.

Required:
i) Motor vehicles account for the five years ended 31 December 2006,2007,2008,2009 and 2010.
ii) Provision for depreciation account for the same years stated in (b) (i) above
iii) Disposal of motor vehicles account
May 2011 Question Three B

QUESTION 9
Distinguish between "allowance for bad and doubtful debts" and "bad debts"

November 2011 Question Five A

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 8
TOPIC 4
CORRECTION OF ERRORS AND SUSPENSE
ACCOUNT

QUESTION 1
(b) Highlight six types of errors that could be reflected in a trial balance.
May 2014 Question Five B

QUESTION 2
a) Citing an example in each case, briefly explain four types of bookkeeping errors which are not
disclosed by a trial balance
b) The trial balance extracted from the books of Benard Masita as at 30 September 2010 failed to
agree. The debit difference of Sh. 442,000 was posted to a suspense account. An income
statement was prepared which showed a gross profit and a net profit of Sh. 1,985,000 and
Sh.1,229,000 respectively. Upon investigations, the following errors were discovered:
1. A purchase of Sh 150,000 on credit was correctly posted to the suppliers account but was
completely omitted from the purchases day book.
2. Sales amounting to Sh. 250,000 to Samuel Njuguna were erroneously credited to his account.
The sales account had been correctly posted.
3. Salaries paid for the month of September 2010 amounting to Sh. 230,000 were recorded in the
salaries account as Sh 320,000.
4. Purchases of office stationery for Sh. 125,000 were erroneously debited to purchases account.
5. A payment of Sh.45,000 to Daniel Olunya, a creditor, was erroneously debited to the account of
Alois Olunya, another creditor.
6. An entry of Sh.21,000 for returns outwards was made in error in the sales day book instead of in
the purchases return day book.
7. A bad debt of Sh 22,500 is yet to be written off.
8. Goods valued at Sh220,000 were taken for personal use but no entry had been made in the
books.
9. A discount received of Sh.59,000 was correctly entered in the cashbook but posted to the
discounts allowed account.

Required:
i) A fully balanced suspense account.
ii) Statement of corrected gross profit.
iii) Statement of corrected net profit.
December 2010 Question Two

QUESSTION 3
(a) Outline the extent to which a trial balance is an indicator of correct book-keeping by an entity.
(b) After preparation of the trial balance or Bakari Brothers Enterprises as at 31 September 2005, the
firm’s accountant has been provided with the following additional information for the purpose of
preparation of the final accounts:

1. Due to an oversight, discount has been allowed to a credit customer on the gross invoiced
amount of Sh.80,000 at the rate 10%. The firm should have used a rate if 6%.
2. Electricity accrued amounts to Sh.36,710 while insurance premiums of Sh. 22,450 havebeen
prepaid.
3. In October 2005, the employees of the firm received a general salary increase, backdated to 1
July 2005. Amounts totalling Sh.126,550 in salary arrears are payable to former employees

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 9
who left shortly before the salary award was announced and who have not yet been traced. It
has been decided that the salary packets will be opened and the cash banked until the ex-
employees are traced.
4. Wages due to casuals amounting to Sh. 464,120 for services rendered in the last week of
December 2005 were paid in January 2006 together with the salaries for the month of
December 2005 which amounted to Sh.301,700.
5. During the year, the exterior of the warehouse was repaired and repainted at a cost of
Sh.500,000. This amount was erroneously debited to office premises account. It is policy of
Bakari Brothers Enterprises to provide for depreciation on the closing balances of non-current
assets and this has already been done. The annual rate of depreciation on office premises is
2% calculated on the straight-line basis.
6. In December 2005 2005, Bakari Brothers Enterprises had bought goods on credit from CB
Ltd. for Sh. 452,100 and has also sold goods on credit to the same company for Sh.163,040.
These amounts were correctly posted to their respective accounts. However, these accounts
are to be offset as at 31 December 2005 and the remaining balance settled by cheque in
January 2006.
7. The provision for discounts allowed to debtors, which at present has a balance of Sh.229,530
needs to be reduced to Sh. 157,400.
8. Debts totaling Sh.64,800 are irrecoverable and should be written off. However, amount of
Sh.21,440 written off as a bad debt in the previous year has now been recovered in full but the
cheque in settlement has not been banked or posted in the accounts.

Required:
Journal entries, including narrations, necessary to record the above transactions in the books of Bakari
Bothers Enterprises.

QUESTION 4
Ben Mogaka prepared the following draft balance sheet for BM Enterprises as at 31 December 2005:

Non current assets Cost Accumulated depreciation Net book value

Sh. Sh. Sh.
Equipment 450,000 220,000 230,000
Furniture 300,000 150,000 150,000
Motor vehicles 600,000 300,000 300,000
1,350,000 670,000 680,000

Current Assets:
Inventory 122,800
Accounts receivable 19,600
Deposit account 50,000
Suspense account 9,000 201,400
881,400
Financed by:
Capital 652,000
Net profit 153,200
Drawings (13,200) 792,000

Current liabilities:
Accounts payable 81,400
Bank overdraft 8,000 89,400
881,400

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 10
Additional information:
On further investigation, the suspense account was discovered to have resulted from the following
errors:
1. The sales of goods on credit to Alex Otis amounting to Sh.19,000had been recorded in the sales
journal as sh.9,000.
2. A receipt of Sh.20,000 from sale of an item of equipment had been credited to sales account. The
equipment was shown in the books of account at costs of account of Sh.90,000 and accumulated
depreciation of Sh.72,000.
3. A credit note from a supplier, Simon Masound for Sh.15,000 had been omitted from the books.
4. A bank overdraft for Sh.7,000 reflected in the cash book as at 31 December 2005 was omitted In
the trial balance.
5. A payment of Sh. 9,700 to Tom Wambugu, a creditor, was correctly entered in the cahs book but
posted to his personal account as Sh.7,900.
6. The debit side of rent expense account had been undercast by Sh.1,000.
7. A provision of Sh.2,000 for sundry expenses outstanding as at 31 December 2004 and debited to
sundry expenses at that dated had not been brought forward to the credit of the account in the
following period. No credit entry had been made in any other account in respect to this account
in respect to this item.
8. Discount received from the supplier of Sh.8,200 had been entered on the wrong side of purchases
ledger control account.
9. On 31 December, goods valued at Sh.9,600 (selling price) were returned by Jane Kerubo (a
debtor). No entry had been made in the books to reflect this transaction. These goods were not
included in the closing stock.
10. Discounts allowed were overcast by Sh.1,200.

Required:
(a) Journal entries to correct the above errors (Narration not required)
(b) Suspense account.
(c) Statement of corrected net profit for the year ended 31 December 2005
(d) Corrected balance sheet as 31 December 2005.

QUESTION 5
(a) Briefly explain the following types of errors:
i. Error of commission
ii. Error of principle
iii. Complete reversal of entries
iv. Compensating errors
(b) The trial balance of Amanda Ltd as at 30 April 2004 did not balance. On investigation, the
following errors were discovered:
1. A loan of Sh.2,000,000 from one of the directors has been correctly entered in the cashbook
but posted to the wrong side of the loan account.
2. The purchase of a motor vehicle on credit fro Sh.2,860,000 had been recorded by debiting the
supplier’s account and crediting the motor expenses account.
3. A cheque for Sh.80,000 from Ogola, a customer to whom goods are regularly supplied on
credit, was correctly entered in the cashbook but was posted to the credit of bad debts
recovered account in the mistaken belief that it was a receipt from Agola, a customer whose
debt had been written off three years earlier.
4. In reconciling the company’s cash book with the bank statement, it was found that bank
charges of Sh.38,000 had not been entered in the company’s records.
5. The totals of the cash discount columns in the cashbook for the month of April 2004 had not
been posted to the respective discount accounts.
The figures were:
Sh.
Discounts allowed 184,000
Discounts received 397,000

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REVISION PARTNER 11
6. The company had purchased some plant on 1 March 2003 for Sh.1,600,000. The payment was
correctly entered in the cashbook but was debited to the plant repairs account. Depreciation
on such plant is provided for at the rate of 20% per annum on cost.

Required:
(i) Journal entries with narrations to correct the above errors.
(ii) Suspense accounts showing the original difference

QUESTION 6
a) Explain any four purposes of journal entries in the accounting process
b) Walter Muita, a sole trader, presented the following balance sheet of his business as at 30 June
2005. He asked you to investigate the causes of errors giving rise to the amount in the suspense
account:

Sh. Sh. Sh.

Capital 225,000 Fixed assets:
Profit for the year 200,000 Fixtures and fittings 60,000
425,000 Less: Depreciation Machinery 25,000 35,000
Less drawings (150,000) Less: Machinery 75,000
275,000 Less Depreciation 20,000 55,000
Current liabilities Current assets 150,000 90,000
Creditors 74,500 Stock 85,000
Suspense account 500 Debtors 25,000
Bank balance 260,000
350,000 350,000

You subsequently discovered the following errors:

1. The purchases day book was undercast by Sh.4,000.
2. A telephone head costing Sh.3,000 was bought and the amount was debited to the repairs account.
3. The telephone head is to be depreciated at the rate of 15% per annum as pari of fixtures and
fittings.
4. An amount of Sh.2,000 was omitted from total debtors.
5. Returns outwards of Sh.500 were erroneously entered in the sales book.
6. A payment of Sh.1,250 to a creditor was correctly entered in the cash book but credited to his
account.
7. Goods valued at Sh.l 0,000 were taken by Walter Muita for his own use and no entry has been
made to this effect.
8. A bad debt of Sh 1,250 had been written off
9. A discount received of Sh4,500 had been correctly recorded in the cash book but had been posted
to the wrong side of the discount received account.

Required:
i) Show the necessary journal entries to correct the errors listed above.
ii) Prepare a statement of adjusted profit (or loss) for the year ended 30 June 2005.
iii) Prepare the corrected balance sheet as at 30 June 2005.

QUESTION 7
a) Briefly explain the following:
i) Error of principle.
ii) Error of commission
b) Joshua Mwalo operates a small hardware shop. He extracts trial balance at the end of every
month. The trial balance extracted as at 30 April 2005 did not balance, the credits exceeding the
debits by Sh.184, 320. Upon further investigation, the following errors were discovered:
1) A balance of Sh.10,440 on a debtor's account had been omitted from the schedule of debtors,
the total which was entered as debtors in the trial balance.

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 12
2) The receipts side of the cash book had been undercast by Sh.72,900.
3) A credit note for Sh.2l A80 received from a supplier had been posted to the wrong side of his
account.
4) A computer purchased or Sh.144,000 had been written off to general expenses.
5) A debtor whose past debts had been the subject of a provision, paid Sh.87,720 to clear his
account. His personal account had been credited but the cheque had not yet been recorded in
the cash book
6) An electricity bill amounting to Sh.8,240 which had not yet been accrued, was discovered in a
filing tray.
7) The totals in the sales day book had been carried forward as Sh.948,780 whereas the correct
amount was Sh.978,480.

Required:
i) Journal entries to correct the above errors.
ii) Suspense account to dear the difference between the totals of the debit and credit sides.

QUESTION 8
Ali Osman is a sole trader who operates a retail business. His balance sheet as at 30 April 2004 was as
follows:
Sh'000' Sh'000’ Sh'000’
Capital and liabilities: Fixed assets: 200,000
Capital 420,000 Buildings 150,000
Add: Net profit for the year 105,000 Plant and machinery 350,000
525,000 Current assets
Less: Drawings (80,000) Stock 40,000
Debtors 32,220
Current liabilities Balance at bank 50,000
Sundry creditors 34,000 Cash in hand 4,540 126,760
- Suspense account 2,240
479,000 479,000

Although the trial balance did not agree, the above balance sheet was prepared and a suspense account
opened to which the difference was posted. At a later date, an inspection of the books revealed the
following:

1. The salaries day book had been overcast by Sh.3,000,000.

1. A payment of Sh. 1,560,000 received from a debtor had been recorded in the cashbook but had
not been posted to the personal account.
2. A discount received 0 Sh.150,000 had been posted to the wrong side of the personal account.
3. The stock book had been undercast by Sh.! 0,000,000 as at 30 April 2004.
4. Bank charges of Sh.850,000 had not been entered into the books.
5. A cash balance of Sh.500,000 had not been included in the trial balance.
6. An invoice for Sh.850,000 for private work commissioned by Ali Osman had been paid by the
business and posted to sundry expenses account.

Required:
a) Suspense account to clear the difference.
b) Statement showing the correct net profit or the year ended 30 April 2004

QUESTION 9
On 31 December 2001 an inexperienced book-keeper working for Wanji, a sole trader, extracted a
trial balance. Due to errors committed by the book-keeper, the trial balance failed to balance by
Sh.369.400. He placed the difference in a suspense account as shown below:

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REVISION PARTNER 13
Wanji trial balance as at 31 December 2001
Sh. Sh.
Fixed assets-cost 832,000
Stocks
1 January 2001 148.000
31 December 2001 98,800
Trade debtors 76,000
Prepayments 10,000
Trade creditors 34.600
Bank overdraft 15,200
Accruals 16,000
Drawings 359.600
Capital 1,054,000
Sales 1,043,200
Provision for depreciation 166,400
Purchases 733.000
Operating expenses 126.000
Provision for doubtful debts 3,800
Discounts received 5,000
Discounts allowed 5,800
Suspense account 369.400
2,548 400 248 400

Investigations carried out after preparing the above trial balance detected the following errors:
1. The total of the sales day book for December 2001 was overcast by Sh.25,700.
2. On 2 July 2001 the business purchased office equipment for Sh.40.000. These were debited
to purchases account.
3. Depreciation on the equipment is at the rate of 10% per annum on cost and based on the
period (months) of usage in the year.
4. A payment to a creditor by cheque of Sh.8.500 was erroneously credited to the creditor's account.
5. A payment of Sh.4.500 for telephone expenses was debited to telephone account as Sh.5.400.
6. An amount of Sh.15.000 received from a debtor was not posted to the debtor's account
from the cash book.
7. An amount of discounts received of Sh.2.500 was debited to discounts allowed
account.
8. Purchases day book for October 2001 was undercast by Sh.28,000.
9. Assume the business had reported a net profit of Sh.85,800 before adjusting for the above
errors.

Required:
(a) The adjusted trial balance and the correct balance of the suspense account
(b) Journal entries to correct the errors (Narrations not required)
(c) Suspense account starting with the balance determined in the adjusted trial balance in (a) above.
(d) The adjusted net profit for the year.

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REVISION PARTNER 14
TOPIC 5
FINANCIAL STATEMENTS OF A SOLE TRADER
QUESTION 1
Lucy Wabetta operates a wholesale shop. The following information has been provided from her
business records:
1. All receipts are banked and all payments are made from the bank account. A summary of the bank
account for the year ended 30 September 2014 was as follows:

Sh. ‘000’ Sh. ‘000’

Balance brought forward 197 Payments to suppliers 7,200
Cash from receivables 9,600 Purchase of motor vehicle (pick-up) 1,300
Sale of private house 2,000 Insurance 80
Sale of motor vehicle (saloon car) 210 Repairs 65
Drawings 920
Postage and stationery 136
Motor vehicle expenses 335
Salaries and wages 1,510
Rent 260
- Balance carried forward 201
12,007 12,007

2. Discounts received amounted to Sh.110,000.

3. Assets and liabilities were as follows:

1 October 2013 30 September 2014

Sh. ‘000’ Sh. ‘000’
Motor vehicle (saloon):
At cost 1,000 -
Accumulated depreciation 800 -
Motor vehicle (pick-up):
At cost - 1,300
Accumulated depreciation - ?
Inventory 490 590
Prepaid insurance. 16 20
Trade accounts payable 470 259
Trade accounts receivable 732 950
Accrued rent 20 26

4. Included in the trade accounts receivable as at 30 September 2014 is Sh.30,000 that should be
written off.
5. Provide depreciation at the rate of 20% on cost of the motor vehicles held at the end of each
financial year. No depreciation is provided in the year of disposal.
6. Proceeds from the sale of the private house were capitalized.

Required:
(a) Income statement for the year ended 30 September 2014.
(b) Statement of financial position as at 30 September 2014.

November 2014 Question Two

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 15
QUESTION 2
The following balances were extracted from the books of Biashara Kubwa Enterprise, a wholesale
business, as at 31 October 2011:
Sh.
Drawings 660,000
Trade receivables 990,000
Purchases 2,303,840
Sales returns 79,420
Capital 4,104,100
Trade payables 330,000
Sales 4,691,280
Purchase returns 120,340
Discount received 93,720
Provision for depreciation: Motor vehicle 176,000
Fixtures and fittings 63,800
Allowance for doubtful debts 44,000
15% bank loan 220,000
Salaries and wages 1,034,000
Discount allowed 54,560
Bank balance 568,260
Cash in hand 26,400
Electricity expenses 103,840
Rent and rates 54,560
Freehold premises (cost) 1,569,700
Fixtures and fittings (cost) 334,400
Motor vehicles (cost) 462,000
Stationery 34,320
Postage and telephone expenses 44,000
Insurance premiums 13,200
Bad debts written off 15,840
Motor vehicle expenses 84,920
Inventory (1November 2010) 1,393,480
Interest on bank loan 16,500

Additional information:
1. The following were the values provided on inventory as at 31 October 2011:
Replacement cost Sh. 1,036,400
Net realizable value Sh. 1,366,200
2. Sales include Sh. 300,000 worth of goods sold by Biashara Kubwa Enterprise agents', who are
allowed 15% commission on such sales. The transaction has not been recorded in the books.
3. Depreciation is to be provided as follows:
Fixtures and fittings 10% per annum on reducing balance basis.
Motor vehicles 15% per annum on straight line basis
4. Annual insurance premium amounted to Sh. 12,000
5. As at 31 October 2011, there was a balance of Sh. 65,000 received from a customer in cash
6. Salaries and wages were in arrears of Sh. 35,000
7. The electricity bill for the month of October of Sh. 14,500 was received on 5 November 2011
8. Stationery stock amounted to Sh. 8,750
9. An allowance of 5% is to be maintained for doubtful debts
10.Goods worth Sh. 48,840 had been distributed to potential customers as free samples

Required:
(a) Income statement for the year ended 31 October 2011
(b) Statement of financial position as at 31 October 2011
November 2011 Question One

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 16
QUESTION 3
The following balances were extracted from the books of Patel and Sons in respect of the year ended
31 December 2005:
Sh. ‘000’ Sh. ‘000’
Sales 1,352,000
Purchases 990,000
Debtors l77,800
Creditors 83,400
Stock in trade (I January 2005) 80.000
Machinery (cost) 112,500
Furniture 17,000
Rent for building 19,200
Cash in hand 8,500
Cash at bank 34,738
Drawings 24,000
Capital 180.000
Salaries 37,820
Bad debts 2,400
Suspense account 6,000
Provision for bad debts 6,400
Printing expenses 4,600
Postage 3,000
Travelling expenses 15,800
Telephone expenses 3,200
Miscellaneous expenses 83,612
Insurance premiums 2,080
1,621,800 1,621,800

Additional information:
1. Old furniture which stood in the books (as at I January 2005) at Sh.2,400,000 was disposed of at
Sh.1,160,000 during the year in part exchange for new furniture costing Sh.2,080,000. A net
invoice of Sh.920,000 in respect of this transaction was erroneously passed through the Purchases
Day Book.
2. The suspense account represented money advanced to a sales team detailed to undertake a sales
campaign in the Rift Valley Province. On returning, the sales team disclosed that Sh.2,400,000
was used for travelling, Sh.1,000,000 for legal fees and Sh.1,800,000 for miscellaneous expenses.
The balance was yet to be refunded by 31 December 2005.
3. The business is conducted 10 a rented building and 50% or the building is used for
accommodation of the business owner's family.
4. Depreciation is to be provided on the straight line basis at 10%) per annum on machinery and 5%
per annum on furniture. Depreciation is to be applied for the whole year regardless of date of
purchase of the asset.
5. Total bad debts for the year amounted to Sh.4,000,000. Provision for doubtful debts is to be
maintained at 5% of the outstanding debtors
6. Closing stock amounted to Sh100,000,000
7. Insurance premiums cover the one year period ended 31 January 2006.

Required:
a) Trading and profit and loss account for the year ended 31 December 2005.
b) Balance sheet as at 31 December 2005

QUESTION 4
The following trial balance was extracted from the books of Mohammed Kagame, a sole trader, as at
31 October 2004:

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 17
Sh. Sh.
Capital 1,216,260
Drawings 128,880
Sales 4,904,520
Purchases 3,726,060
Debtors and creditors 476,160 327,720
Rent and rates 52,800
Electricity 14,760
Salaries and wages 496,080
Provision for doubtful debts (1 November 2003) 19,560
Stock in trade (1 November 2003) 556,440
Insurance 10,320
General expenses 55,980
Bank balance 90,000
Cash in hand 4,920
Motor vehicle at cost 580,000
Provision for depreciation on motor vehicles (1 November 2003) 216,000
Proceeds from sale of motor vehicle 115,000
Motor vehicle expenses 51,660
Premises (at cost) 600,000
Rent received 45,000
6,844,060 6,844,060

Additional Information:
1. Stock in trade as at 31 October 2004 was valued at Sh593,040.
2. Rates and insurance were prepaid to the extent ofSh.2,400 and Sh.2,820 respectively, as at 3 J
October 2004,
3. Electricity due as at 31 October 2004 amounted to Sh.6,000.
4. The provision for doubtful debts is to be adjusted to S% of the debtors remaining after taking into
account that Sh.20, 1 60 of the debtors were to be regarded as bad.
5. Rent receivable as at 31 October 2004 was Sh. 15,000
6. Depreciation has been and is to be charged on motor vehicles at the rate of 20% per annum on the
straight line basis. No depreciation is to be charged on premises.
7. In November 2003, a motor vehicle which had been purchased or Sh.160,000 on I November
2000, was sold for Sh.115,000. The only record of this disposal is the entry in the proceeds from
sale of motor vehicle account.

Required:
a) Trading and profit and loss account or the year ended 31 October 2004
b) Balance sheet as at 3 I October 2004.

QUESTION 5
Mali Mingi is the sole distribution agent of roofing sheets in Mombasa. Under an agreement with the
manufacturers, Mabati Ltd., Mali Mingi purchases roofing sheets from Mabati Ltd. at a trade discount
of 20% of the list price. Every year in the month of May, Mali Mingi receives an agency commission
of 1% of his purchases for previous year ended 31 March.

Mali Mingi has been making a gross profit of 40% on all sales. In a burglary that occurred in January
2004, Mali Mingi lost stock costing Sh.480,000 as well as the bulk of his accounting records.

After thorough investigation, the accountant has obtained the following information relating to the
year ended 31 March 2004:

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 18
1. Assets and liabilities as at 31 March 2003 were:
Sh.
Buildings at cost 1,200,000
Provision for depreciation on buildings 720,000
Motor vehicles at cost 600,000
Provision for depreciation on motor vehicles 240,000
Stock at cost 384,000
Trade debtors (sales) 756,000
Prepayment (Trade expenses) 14,400
Agency commission receivable 36,000
Balance at bank and cash in hand 517,200
Trade creditors 504,000
Accrued motor vehicle expenses 27,600

2. Mali Mingi has been notified that he will receive an agency commission of SH. 52,800 on 1 May
2004. Commissions are paid directly to the bank.
3. Stock, at cost, at 31 March 2004 was valued at Sh.360,000 more than the value as at 31 March
2003. In October 2003, stock worth Sh.120,000 was scrapped as worthless.
4. Other details relating to the period up to 31 March 2004 are as follows:
Sh.
Discounts allowed 194,400
Discounts received 144,000
Prepaid trade expenses 9,600
Motor vehicle expenses 842,400

5. Balances as at 31 March 2004:

Sh.
Trade creditors at list prices 1,140,000
Trade debtors 804,000

6. Depreciation is provided at the following rates:

Buildings – 5% per annum on cost
Motor vehicles – 20% per annum on cost
7. In addition to purchases, the following payments were made through the bank:
Sh.
Motor vehicle expenses 806,400
Drawings 516,000
Trade expenses 883,200

8. All receipts pass through the bank and Mali Mingi is not insured against burglary.
9. The agency commission due as at 31 March 2003, was received during the year through the bank.
10. All purchases and sales are on credit.

Required:
(a) Trading and profit and loss accounts for the year ended 31 March 2004.
(b) Balance sheet as at 31 March 2004.

QUESTION 6
Muthusi is a businessman operating a retail business in a small town. Due to the size of his business,
he is not able to employ a qualified accountant on a permanent basis.

The following information was extracted from the books of the business as at 31 October 2002:

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 19
Shs.
Freehold property (cost) 600,000
Motor vehicles (NBV) 750,000
Furniture and fixtures (NBV) 240,000
Stock 390,000
Trade debtors 500,000
Bank overdraft 60,000
Trade creditors 380,000
Accruals 15,000
10% loan 600,000
Provision for doubtful debts 25,000

The following transactions took place during the financial year ended 31 October 2003:
1. Sales and purchases on credit amounted to Sh.2,080,000 and Sh.1,900,000 respectively.
2. The following transactions were carried out through the bank account:

Shs.
Sales – Cash 720,000
Purchases – Cash 240,000
Payments to trade creditors 1,940,000
Purchase of furniture 200,000
Salaries and wages 160,000
Lighting 65,000
General expenses 35,000
Interest on loan 30,000
Drawings 60,000
Repayment of loan on 30 April 2003 100,000
Collections from trade debtors 1,890,000
Proceeds from sale of motor vehicle 120,000

3. The business depreciates motor vehicles at 20% per annum on a reducing balance basis. A full
year’s depreciation is provided on a motor vehicle acquired in the course of the year and no
depreciation is provided on a motor vehicle disposed of in the course of the year.
The motor vehicle sold in the year had been purchased at Sh.250,000 and an accumulated
depreciation of Sh.122,000 had been provided on it at the time of disposal.
4. Furniture is depreciated at 10% per annum on cost and in proportion to the period used in the
year. The additional furniture was purchased on 1 May 20903 while the cost of furniture held on
31 October 2002 was Sh.400,000
5. Loan interest paid was for one-half year up to 30 April 2003
6. The business received discounts of Sh.40,000 and allowed discounts of Sh.70,000 during the year.
7. Bad debts of Sh.20,000 were written off. Provision for doubtful debts is to be maintained at 5% of
the debtor’s balance at the end of the year.
8. Accruals are in respect of lighting and on 31 October 2003, the amount accrued was Sh.19,000
9. Muthusi’s business obtains a normal gross profit rate of 25% on selling price.

Required:
(a) Trading and profit and loss account for the year ended 31 October 2003
(b) Balance sheet as at 31 October 2003.

QUESTION 7
The following trial balance was extracted from the books of Hari Singh as at 31December 2004:
Sh. Sh
Drawings 1,600,000
Cash 676,000
Petty cash 100,000

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 20
Fixtures and fittings (cost) 2,000,000
Stock (1 January 2004) 5,000,000
Salaries and wages 5,200,000
Debtors and creditors 5,000,000 3,500,000
Bank balance 2,100,000
Rent 900,000
Electricity 600,000
Motor vehicle (written down value) 1,024,000
Advertising 900,000
Capital 3,400,000
Purchases 40,000,000
Sales 60,000,000
Postage and telephone 300,000
Discounts allowed 1,140,000
General expenses 400,000
Petty cash expenses 960,000
Suspense account 1,000,000
67,900,000 67,900,000

Additional information:
1. Closing stock as at 31 December 2004 was valued at Sh.7,500,000
2. Petty cash balance represents the month end imprest amount. As at 31 December 2004, the petty
cashier had vouchers amounting to Sh40,000 which had not been reimbursed by the main
cashier.
3. Discounts allowed amounting to Sh.100,000 had been posted to the debit of the debtors account.
4. Sales had been undercast by Sh400,000.
5. The motor vehicle, which had been purchased on 1 January 2002, was being depreciated at 20%
per annum on the reducing balance basis. The original cost of the motor vehicle was
Sh.2,000,000. It has been decided that the motor vehicle be depreciated at 6% per annum on the
straight line basis and to make the change effective from the date of purchase.
6. Cash withdrawn from the bank for business use amounting to Sh400,000 had not been entered
in the bank column of the cash book.
7. No entry bas been made for stock valued at Sh1,000,000 taken by the proprietor for personal
use.
8. Telephone bills amounting to Sh.100,000 were unpaid as at 31 December 2004.
9. Advertising expenses include the cost of a sales campaign conducted during the year of
Sh.600,000. It is expected that the benefits of this campaign will be enjoyed or the next three
years.
10. Fixtures and fittings are to be depreciated at 20%. per annum on cost.

Required:
a) Trading, profit and loss account or the year ended 31 December 2004.
b) Balance sheet as at 31 December 2004.

QUESTION 8
The following trial balance was extracted from the books of T. Onyancha a sole trader,

Sh. Sh.
Capital 5,920,000
Drawings 1,200,000
Trade debtors 1,808,400
Trade creditors 2,168,000
Sales 8,892,600
Purchases 4,188,400
Stock - 1January 2003 2,533,300

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 21
Sales returns 144,700
Purchases returns 218,800
Cash in hand 56,800
Balance at bank 1,056,400
Warehouse expenses 640,000
Discounts allowed 90,200
Discounts received 170,000
Office salaries 600,000
Office lighting 188,800
Rates 108,200
Motor vehicle (cost) 1,280,000
Freehold premises (cost) 2,600,000
Fixtures and fittings 576,000
General expenses 142,400
Insurance 28,000
Provision for bad debts 50,000
Motor vehicle expenses 150,400
Bad debts written off 28,800
17,420,800 17,420,800

Additional information:
1. Stock as at 31 December 2003 was valued at Sh. 1,760,000
2. Depreciation on fixtures and fittings and the motor vehicle is to be provided at the rate of 5% and
10% per annum on cost respectively.
3. Rates prepaid as at 31 December 2003 amounted to Sh.25,600.
4. Unexpired insurance as at 31 December 2003 is to be made at 21/2 of the trade debtors,

Required:
a) Trading and profit and loss account for the year ended 31 December 2003.
b) Balances sheet as at 31 December 2003.

QUESTION 9
The following balances were extracted from the boob of Chuma Enterprises as at 30 September 2003.

Sh
Trade creditors 546,000
Sundry expenses 134,400
Land and buildings 960,000
Capital 1,182,000
Water and lighting 9,600
Bad debts recovered 8,400
Stock (30 September 2003) 292,800
Rent receivable 283,200
Investments 408,000
Salaries and wages 484,200
Trade debtors 318,000
Provision for depreciation - Office equipment 62,100
Motor vehicle 24,000
Discounts - received 55,200
allowed 48,000
Cash at bank 13,200
Personal expenses 414,600
Provision for bad debts and doubtful debts 27,900
Motor vehicle (at cost) 84,000

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 22
Rates and insurance 97,200
Gross profit 1,272,000
Bad debts written off 6,600
Office equipment (at cost) 180,000
Petty cash imprest in hand 10,200

Additional information:
1. Provision for depreciation on the motor vehicle and office equipment is to be provided so as to
reflect two years depreciation at the rate of 20% per annum on cost.
2. Rent received amounting to Sh.6,000 has not been recorded ill the accounts. The proprietor
converted this money to personal use.
3. The sales day book had been overcast by Sh.9,000.
4. Discounts allowed amounting to Sh.7,200 had been posted to the discounts allowed account but
not to the debtors account.
5. The sales returns day book had been overcast by Sh1,800.
6. Stock at 30 September 2003 included an item valued at Sh.60,000 which had been sold and
invoiced to a customer on 30 September 2003.

Required:
a) Profit and loss account for the year ended 30 September 2003
b) Balance sheet as a. 30 September 2003

Water is the strongest drink,

it drives mills. It’s the drink of
lions and horses, and
Samson never drank anything
else.

Spurgeon.

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 23
TOPIC 6
FINANCIAL STATEMENTS OF A PARTNERSHIP
QUESTION 1
Sylivia and William are in a partnership business trading under the name Slywill Enterprises. Their
statement of financial position as at 31 October 2013 failed to agree. The difference was-posted to a
suspense account pending investigations as shown below:

Non-current assets Sh. Sh. Sh.

Premises (net book value) 28,800,000
Equipment (net book value) 12,480,000
Motor vehicles (net book value) 10,032,000
51,312,000
Current assets
Inventory 21,460,800
Accounts receivable 11,421,600
Less: Allowance for doubtful debts (1,113,600) 10,308,000
Prepayments 686,400
Cash and bank balance 5,232,000 37,687,200

Total assets 88,999,200

Capital and -liabilities
Capital accounts: Sylvia 33,600,000
William 33,600,000 67,200,000
Current accounts: Sylvia 3,264,000
William (1,948,800) 1,315,200
Current liabilities
Accounts payable 2,038,400
Accruals 614,400 12,652,800
Suspense account 7,831,200
Total capital and liabilities 88,999,200

Additional information:
After checking all the entries, the following errors were discovered:
1. Discounts received of Sh. 633,600 had been debited to discounts allowed account.
2. The sales account had been undercast by Sh. 4,800,000.
3. The purchase returns day book had been correctly entered and totalled at Sh. 2,956,800 but had
not been posted to the ledger.
4. A credit sale of Sh. 705,600 had been debited to the customer's account as Sh. l,029,600.
5. A motor vehicle originally bought for Sh.3,360,000 four years ago and depreciated at 20% using
the straight-line method had a residual value of Sh.480,000. The motor vehicle was disposed of at
Sh.1,440,000
No entries, other than bank account, had been passed through the books.
6. An accrual of Sh. 268,800 for electricity charges had been omitted from the books.
7. A bad debt of Sh. 748,800 had not been written off.
8. Allowance for doubtful debts should be maintained at 10% of accounts receivable.
9. Sylvia's current account had been credited with a partnership salary of Sh. 1,440,000 which
should have been credited to William’s current account.
10. Sylvia had withdrawn goods worth Sh.940,800 for personal use. No entry had been made in the
partnership books.
11. The partners share profits as follows:

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 24
Sylvia - 60%
William - 40%
Required:
a) Suspense account, duly balanced, for the year ended 31 October 2013
b) Statement of adjustments to show the correct net profit for the year ended 31 October 2013
c) Partners' current accounts.
d) Statement of financial position as at 31 October 2013.

November 2013 Question Four

QUESTION 2
Kanini, Lucy and Ndwiga are in partnership sharing profits and losses in the ratio 3:2:1 respectievly.
Ndwiga decided to retire on 31 December 2012 and Gitonga was admitted as a partner on that date.

The following is the partnership trial balance as at 31december 2012

Sh. Sh.
Premises 1,800,000
Plant 740,000
Vehicles 300,000
Equipment 40,000
Inventory as at 31 December 2012 1,247,580
Accounts receivable 699,600
Cash 15,200
Accounts payable 380,720
Bank overdraft 84,000
Loan Ndwiga 560,000
Capital Kanini 1,700,000
Lucy 1,300,000
Ndwiga 700,000
Current accounts Kanini 74,280
Lucy 50,180
Ndwiga ________ 93,560
4,892,560 4,892,560

Additional information
1. Revaluation premises Sh. 2,400,000 plant Sh. 700,000 and inventory Sh. 1,083,580
2. Allowance for doubtful debts amounting to sh. 60,000 is to be provided
3. Goodwill amounting to sh. 840,000 is to be recorded in the books on the day Ndwiga retires. The
partners in the new partnership do not wish to maintain goodwill.
4. Kanini and Lucy are to share profits in the same ratio as before. Gitonga will have the same share
of profits as Lucy.
5. Ndwiga is to take his car at book value of sh. 78,000 in part payment and the balance of all he is
owned by the firm in cash except sh. 400,000 which he is willing to leave as a loan account.
6. The partners in the new firm are to start on equal footing so far as capital and current accounts are
concerned. Gitonga is to contribute cash to bring his capital and current accounts to the same
amount as the original partner from the old firm who has the lower investment in the business
7. The original partner in the old firm who has the higher investment will draw cash so that capital
and current account balances equal those of his new partners

Required;-
a) Partners capital account
b) Partners current account
c) Statement of financial position for the partnership of Kanini, Lucy and Gitonga as at 31 December
2012
May 2013 Question Three

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 25
QUESTION 3
John and Joel were partners in a business sharing profits and losses in the ratio of 2:1. Interest on
fixed capital was allowed at the rate of 10% per annum. No interest was charged on current accounts.
On 30 September 2011 Joy was admitted as a partner and from that date profits and losses were to be
shared in the ratio of 2:2:1 for John, Joel and Joy respectively. Goodwill was not to be retained in the
books with adjusting entries being made in the current accounts.

The following trial balance was extracted from the partnership's books of account as at 31 March
2012:

Sh “000” Sh “000”
Leasehold premises 15,000
Motor vehicles (at cost) 16,400
Furniture and fittings (at cost) 5,800
Accumulated depreciation as at 1 April 2011:
Motor vehicles 3,780
Furniture and fittings 970
Capital accounts: John 6,500
Joel 5,600
Cash introduced by Joy 9,000
Purchases 43,200
Sales 80,000
Bank balance 2,460
Receivable 6,440
Rent and rates 840
Inventory (1 April 2011) 9,600
Salaries 14,960
Selling and distribution costs 5,240
Current accounts: John 3,440
Joel 2,200
Payables 8,450
119,940 119,940

Additional information:
1. No entries have been made to record the admission of Joy. Goodwill was agreed at Sh.10.5
million. Sh.6 million of the cash introduced by Joy was the fixed capital.
2. Salaries include the following partners' drawings:
Sh ‘000’
John 2,580
Joel 2,040
Joy 680
3. Depreciation is to be provided as follows:
Asset Rate per annum
Motor vehicles 20% on cost
Furniture and fittings 10% on cost
4. The sales during the six month period from 1 October 2011 to 31 March 2012 were 50% more
than the sales during the six month period from 1 April 2011 to 30 September 2011. The selling
and distribution expenses varied with the sales.
All other expenses accrued evenly.
5. Inventory as at 31 March 2012 was valued at Sh.11 million.
6. Allowance for doubtful debts was Sh.229,000 as at 30 September 2011 and Sh.309,000 as at 31
March 2012.
7. The leasehold premises is to be amortised over 30 years from 31 March 2011

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 26
Required:
a) Income statement for the year ended 31 March 2012.
b) Statement of financial position as at 3 I March 2012.
c) Partners' current accounts.
May 2012 Question Three

QUESTION 4
Yina and Yangi are in a partnership sharing profit and loss equally. The partnership statement of
financial as at 30 September 2010 and 2011 were as follows:
2011 2010
Sh. "000" Sh. "000"
Non-current assets 11,200 8,400
Accumulated depreciation (3,500) (2,800)
7,700 5,600
Intangible assets 420 -
Current assets:
Inventory 1,960 1,400
Trade receivables 2,660 2,100
Bank balance 2,800 1,960
7,420 5,460
15,540 11,060
Capital and liabilities:
Capital accounts: Yina 2,100 2,100
Yangi 2,520 2,520
4,620 4,620
Current accounts: Yina 2,520 700
Yangi 2,380 700
4,900 1,400
Current liabilities:
Bank overdraft 1,120 560
Trade payable 3,500 2,800
Other payables 1,400 1,680
6,020 5,040
15,540 11,060

Additional information:
1. An item of plant which had cost Sh. 4,480,000 was sold at a profit of Sh. 840,000 during the year.
accumulated depreciation of the plant was Sh. 2,800,000
2. Partners current account as at 30 September 2011 were as follows:
Yina Yangi Yina Yangi
Sh '000' Sh.'000' Sh.'000’ Sh.'000'
Drawings 840 980 Balance brought forward 700 700
Balance carried down 2,520 2,380 Share of profits 2,660 2,660
3,360 3,360 3,360 3,360
Drawings by all partners were all in cash
3. Income tax paid by all partners was Sh140,000

Required:
(a) Statement of cash flows for the year ended 30 September 2011 in accordance with IAS 7
(Statement of cash flows)
(b) Citing examples, briefly explain the following accounting terms:
i) Economic entity
ii) Full disclosure
December 2011 Question Three

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 27
QUESTION 5
Meja and Kariuki have been trading as partners sharing profits and losses in the ratio of their fixed
capitals. The statement of financial position of the partnership as at 31 March 2011 was as follows:

Sh Sh
Non-current assets 636,000
Motor vehicles 271,500
Fixtures and fittings 160,000
Office equipment 1,067,500
Current assets
Inventories 290,700
Accounts receivable 441,000
Cash and cash equivalents 55,200
Prepaid insurance 24,000 810,900
Total assets 1,878,400
Capital and liabilities
Capital accounts: Meja 750,000
Kariuki 500,000
Current accounts: Meja 172,500
Kariuki 114,950 287,450
Current liabilities:
Trade payables 319,350
Other payables 21,600 340,950
Total capital and liabilities 1,878,400

The partners have been having some disagreements on the following issues:
1. The historical cost of the assets did not reflect the fair value of the assets.
2. Although the partners contributed different amounts as fixed capital, the partnership agreement
did not provide for payment of interest on capital.
3. Kariuki devoted his entire working time to the business of the partnership but the partnership
agreement did not provide for any salaries for active partners.
4. Kariuki strongly believed that the present profits and losses sharing ratio was inequitable.
At a meeting convened to resolve the above issues, the partners agreed as follows:
i) The non-current assets as at 31 March 2011 were to be revalued as follows:
Sh.
Motor vehicles 600,000
Fixtures and fittings 262,500
Office equipment 225,000
ii) Inventories as at 31 March 2011 were to be written down to Sh. 275,000 and Sh 16,000 was
to be written off as bad debts. An allowance for doubtful debts of 5% was to be provided on
the remaining accounts receivable.
iii) Interest on capital was to be allowed at 5% per annum for the years ended 31 March 2010 and
31 March 2011.
iv) Kariuki was to be paid a salary of Sh 90,000 per annum for the years ended 31 March 2010
and 31 March 2011.
v) Profits and losses were to be shared equally with effect from 1 April 2009
vi) Meja was to be compensated for his loss arising from the new profit sharing agreement by
allowing him goodwill of Sh. 200,000.The goodwill would not be retained in the books of the
partnership. The net profits for the year ended 31 March 2009,2010 and 2011 were Sh.
425,000,Sh. 525000 and Sh. 412,500 respectively.

Required:
a) Adjusted income statement and appropriation 2011 account for the years ended 31 March 2010
and 31March 2011
b) Partners' current accounts.

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 28
c) Statement of financial position as at 31 March 2011.
June 2011 Question Two

QUESTION 6
Grace and Beatrice were operating a retail business sharing profits and losses in the ratio of 2:1
respectively up to 31 March 2006 when they admitted Catherine to the partnership. The partners
allowed payment of interest on partners' fixed capital accounts but did not allow for interest on
partners' current accounts.

The following balances were extracted from the partnership's book of account as at 30 September
2006:
Sh.'000' Sh.'000'
Leasehold premises(purchased 1 October 2005) 6,000
Purchases 16,400
Sales (sh.14,000,000 to 31 March 2006) 35,000
Motor vehicles at cost 3,400
Salaries 5,200
Provision for depreciation as at 1 October 2005:
Motor vehicles 1,200
Shop fittings 400 1,600
Stocks (1 October 2005) 4,800
Shop fitting at cost at cost 1,200
Accounts receivable 900
Balance at bank 9,280
Fixed capital accounts: Grace 3,000
Beatrice 2,000
Catherine 1,500 6,500

Current accounts: Grace 1,600

Beatrice 1,200
Catherine 3,500 6,300
Professional charges 420
Rent, rates and electricity 1,240
General expenses (Sh.1, 410,000 for six months to 31 March 2006) 2,640
Accounts payable 4,280
Shop wages 2,200

Additional information:
1 On 31 March 2006 when Catherine was admitted as a partner, the profit sharing ratio changed to
Grace 2/5, Beatrice 2/5 and Catherine 1/5. For the purpose of admission, goodwill was valued at
Sh. 12,000,000 and was written off the books immediately. On 1 April 2006, Catherine paid
Sh.5,000,000 which comprised her fixed capital of sh.1,500,000 and her current account
contribution of sh.3,500,000."
2 The partners also agreed that any apportionment of gross profit was to be made on the basis of
sales. The apportionment of expenses, unless otherwise indicated, were to be on time basis.
3 On 30September 2006, stock was valued at Sh.5,100,000.
4 Provision was to be made for depreciation on motor vehicles and shop fittings at the rate of 20%
and 5% per annum respectively, based on cost.
5 Salaries included the following partner’s drawings during the year:
Grace - Sh.600, 000
Beatrice - Sh.480,000
Catherine - Sh.250,000
6 At 30 September 2006, rates paid in advance amounted to sh.260,000 while electricity accrued
amounted to sh.60,000.

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 29
7 A difference in the books of sh.120,000 that had been written off to general expenses as at 30
September 2006 was later found to have been due to the following errors:

∑ Sales returns of sh.180,000 had been debited to sales but was omitted from the customers
account.
∑ The purchase journal had been undercast by sh.200,000.

8 Doubtful debts (for which full provision was required) as at 31 March 2006 amounted to
Sh.120,000 and sh.160,000 as at 30 September 2006.
9 Professional charges included sh.200,000 paid in respect to the acquisition of leasehold
premises. These fees are to be capitalized as part of the lease, the total cost of which was to be
depreciated in 25 equal annual installments. Other premises owned by Beatrice were leased to
the partnership at Sh. 600,000 per annum but no rent had been paid or credited to her for the
year to 30 September 2006.

Required:
(a) Income statement for the year ended 30 September 2006.
(b) Balance sheet as at 30 September 2006.
(c) Partners' current accounts.

QUESTION 7
(a) Briefly explain why goodwill should be paid under the following circumstances:
i) By a partner on admission to a partnership.
ii) To a partner on retirement from a partnership.

(b) Akili, Busara and Chema are in partnership sharing profits sharing profits and losses equally after
allowing for interest on capital at 5% per annum to the partners and a salary to Busara of
Sh.20,000 per month.

The trial balance of the partnership as at 30 April 2006 was as follows:

Sh.'000' Sh.'000'
Capital accounts: Akili - 2,500
Busara - 2,000
Chema - 1,000
Current accounts: Akili - 200
Busara - 300
Chema - 200
Drawings: Akili 300
Busara 400
Chema 200
Sales 20,000
Inventory as at 1 May 2005 3,000
Purchases 10,300
Operating expenses 6,400
Loan: Busara (Interest at 10% per annum) 1,000
Chema (Interest at 10% per annum) 2,000
Land 1,000
Buildings 5,000
Plant and machinery: Cost 7,000
Accumulated depreciation 4,000
(30 April 2006)
Accounts receivable/accounts payable 4,000 3,300
Cash at Bank - 1,100
37,600 37,600

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REVISION PARTNER 30
Additional Information;
1. Closing inventory as at 30 April was valued at sh.2,400,000.
2. Interest on loans had not been paid.
3. Sales include credit sales of Sh.600,000 in respect of two items sold on the basis of
confirmation by the customers. The items had cost Sh.100,000 each. As at 30 April 2006, the
customers had not confirmed whether they would buy the goods.
4. On 1 November 2005, the terms of th epartnership agreement were changed. The new terms
provided for:
∑ Profit sharing ratio of 5:3:2 for Askili, Busara and Chema respectively.
∑ Interest on capital at 5% per annum.
∑ Salaries of Sh.10,000 per month to Busara and Chema.

For the purpose of the change, goodwill was valued at Sh.1,200,000 and was to be written off
immediately while the land buildings were valued at Sh.2,000,000 and Sh.6,400,000 respectively.

Required:
a) Trading, Profit and loss and appropriation accounts for the year ended 30 April 2006
b) Partners' capital and current accounts
c) Balance sheet as at 30 April 2006

Listen to the words of the wise

(consent and submit) to the words of
the wise and apply your mind to
knowledge.

Proverbs 22.

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REVISION PARTNER 31
TOPIC 7
FINANCIAL STATEMENTS OF A COMPANY
QUESTION 1
(b) Apex Ltd. has prepared the following trial balance as at 30 September 2014:

Sh. ‘000’ Sh. ‘000’

Freehold land at cost 60,000
Buildings at cost 50,000
Plant and equipment at cost 120,000
Motor vehicles at cost 32,000
Accumulated depreciation:
Buildings 20,000
Plant and equipment 74,000
Motor vehicles 16,800
Inventory as at 1 October 2013 74,000
Trade receivables and trade payables 122,500 99,800
Bank and cash 3,500
Sales 249,760
Purchases 134,630
Returns inward and returns outward 12,900 4,875
Discounts allowed and discounts received 3,200 1,850
Administrative expenses 22,150
Selling and distribution costs 6,900
Ordinary shares of Sh.100 each 100,000
Retained earnings 69,695
Suspense account - 5,000
641,780 641,780

Additional information:
1. Inventory as at 30 September 2014 was valued at Sh.124, 875,000.
2. As at 30 September 2014, the following balances were relevant:
Accruals Prepayments
Sh. ‘000’ Sh. ‘000’
Administrative expenses 500 12,000
Distribution costs 5,300 8,000

3. Depreciation is to be provided as follows:

Asset Rate per annum
Buildings 4% on cost
Plant and equipment 20% on cost
Motor vehicles 25% on reducing balance

4. Motor vehicles acquired for Sh.14, 000,000 in total and written down to Sh.6, 000,000 as at 1
October 2013 were sold for Sh.5, 000,000.
The cash proceeds were posted in the suspense account.
5. Estimated tax for the year is Sh.15 million.

Required:
(i) Income statement for the year ended 30 September 2014.
(ii) Statement of financial position as at 30 September 2014.
November 2014 Question Four B

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REVISION PARTNER 32
QUESTION 2
The following balances were extracted from the books of Upendo Ltd. for the year ended 31
December 2013:

Sh. ‘000’
Ordinary shares 120,000
8% preference shares 40,000
Inventory (31 December 2013) 83,852
Trade receivables 27,200
Bank balance 7,796
10% debentures 16,000
General reserves 28,000
Gross profit for the year 81,508
Bad debts 340
Salaries and wages 28,200
Insurance and rates 1,410
Telephone expenses 620
Electricity expenses 1,216
Debenture interest 800
Directors' fees 2,500
General expenses 3,108
Motor vehicles at cost 29,100
Accumulated depreciation on motor vehicles 22,300
Office equipment at cost 44,640
Accumulated depreciation on office equipment 17,200
Land 100,000
Buildings at cost 32,200
Trade payables 13,722
Revenue reserves (I January 2013) 24,252

Additional information:
1. Accrued electricity expenses as at 31 December 2013 amounted to Sh.548,000.
2. The amount for insurance includes a premium of Sh.300,000 paid in September 2013 to cover the
company for six months from 1 October 2013 to 31 March 2014.
3. Depreciation is to be provided as follows:
Office equipment - 15% per annum on cost
Motor vehicles - 20% per annum on cost
4. Provisions are to be made for:
• Directors fees - Sh.5,000,000
• Audit fees - Sh.1,200,000
• Outstanding debenture interest.
5. The directors have recommended the following:
• Sh.12,000,000 be transferred to general reserves.
• Dividends on preference shares be paid.
• Payment of a 10% dividend on ordinary shares.
Note: Ignore depreciation on buildings

Required:
(a) Income statement for the year ended 31 December 2013.
(b) Statement of financial position as at 31 December 2013.
May 2014 Question Two

QUESTION 3
(a) Explain the following terms as used in company accounts.
i) Cumulative preference shares.

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REVISION PARTNER 33
ii) Public offer.
iii) Mortgaged debenture

November 2013 Question Five A

QUESTION 4
(b) Sunny Side Ltd. began its operations on 1 July 2012 by raising Sh.52 million ordinary share
capital and issuing 18% per annum debentures.
The following information was extracted from the books of the company for the year ended 30
June 2013:
1.
Item Sh. ‘000’
Dividends paid 3,376
Cash and bank balance 2,500
Operating costs (excluding finance cost) 31,320
Total non-current assets at net book value 60,000

2. The total current assets as at 30 June 2013 consisted of:

∑ Trade receivables.
∑ Inventory.
∑ Cash and bank balance.
3. The total current liabilities as at 30 June 2013 consisted of:
∑ Trade payables.
∑ Taxation charge for the year.
4. Taxation is to be provided for at the rate of 30% per annum.
5. 20% of the total sales for the year were made in cash.
6. Credit purchases during the year amounted to Sh. 28,800,000.
7. The accountant provided the following ratios which were determined from the financial
statements of the company:
∑ Inventory turnover 4.4 times
∑ Non-current asset turnover 1.8 times
∑ Gross profit margin 45%
∑ Average debt collection period 84 days
∑ Interest cover 4 times
∑ Average credit repayment period 90 days
Required:
i) Income statement for the year ended 30 June 2013.
ii) Statement of financial position as at 30 June 2013.
Note: Assume a year has 360 days.
November 2013 Question Three B

QUESTION 5
c) Distinguish between the following
i) “Provision” and “reserve”.
November 2012 Question Five B (II)
QUESTION 6
The following trial balance was extracted from the books of Beta Ltd as at 31 July 2012.
Sh.000 Sh.000
Ordinary shares of Sh.20 each 1,400
Sales 13,860
Purchases 8,540
Trade receivables and payables 2,800 980
Retained earnings (1 August2011) 2,660
Returns inward 420
Buildings at cost 5,600

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REVISION PARTNER 34
Plant at cost 7,000
Provision for depreciation (1 August 2011):
- Plant 2,800
- Buildings 280
Returns outward 560
Selling expenses 980
Bank balance 1,120
10% debentures 4,200
Inventory (1 August 2011) 2,100 -
Allowance for doubtful debts - 140
Operating expenses 1,260 -
Administrative expenses 980 -
Suspense account - 1,680
29,680 29,680

Additional information:
1. Inventory as at 31 July 2012 was valued at Sh.2, 520,000.
2. 35,000 new ordinary shares of Sh.20 each were issued during the year at Sh.32 each. The
proceeds of this issue were credited to the suspense account.
3. A fully depreciated plant which had cost Sh. 1.400,000 was sold during the year. No other entries
except in the bank account were made. The balance remaining in the suspense account after the
adjustment in Note 2 above represents the sales proceeds.
4. A debtor of Sh. 140,000 has been declared bankrupt.
5. An allowance of 5% is to be maintained for doubtful debts.
6. As at 3l July 2012, pre-paid rates amounted to Sh.210, 000.
7. Depreciation is to be provided as follows:
Asset Rate per annum
Buildings 2% on cost
Plant 10% on cost

8. The directors have proposed to pay a dividend of Sh.2 per share and a transfer of Sh. 140,000 to
the general reserve.
9. Corporate tax for the year is estimated to be Sh.630, 000.
10. Debenture interest for the year had not been paid as at 31 July 2012.

Required;
a) Suspense account, duly balanced, for the year ended 31 July 2012.
b) Income statement for the year ended 31 July 2012.
c) Statement of financial position as at July 2012.
November 2012 Question One

QUESTION 7
The following trial balance was extracted from the books of Usaidizi Ltd. for the year ended 31
December 2011:

Sh.'000' Sh.'000'
Ordinary shares (Sh.150 each par value) 750,000
6% preference shares (Sh.200 each par value) 1,000,000
5% debentures 100,000
Investments 80,000
Plant and machinery (at cost) 1,800,000
Motor vehicles (at cost) 200,000
Inventory (I January 2011) 60,000
Purchases 800,000
Carriage inwards 12,600

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 35
Allowance lor doubtful debts 10,000
Sales 1,560,000
Trade receivables 90,200
Income from investments 4,000
Trade payables 60,700
Furniture and fixtures (at cost) 80,000
Salaries and wages 117,840
Bad debts written off 300
Directors' emoluments 80,000
Accumulated depreciation (I January 2011):
Plant and machinery 150,000
Motor vehicles 60,000
Land and buildings 220,000
Miscellaneous expenses 18,000
Cash in hand 6,160
Bank balance 152,200
Insurance 8,400
Audit fees 9,000
Office equipment (at cost) 50,000
Revenue reserve (I January 2011) 30,000
Share premium 40,000
Return outwards 20,000
3,784,700 3,784,700
Additional information:
1. Closing inventory was valued at Sh.44,000,000.
2. As at 31 December 2011, pre-paid insurance amounted to Sh.1,400,000 and Sh.2,160,000 of
salaries were outstanding.
3. Accrued audit expenses as at 31 December 2011 amounted to Sh.1,000,000.
4. Interest on debentures has not been provided for.
5. Depreciation is to be provided as follows:

Asset Rate per annum

Plant and machinery 10% on cost
Motor vehicles 15% on reducing balance
Office equipment 10% on cost
Furniture and fixtures 10% on cost
6. The directors have recommended the following:
∑ Sh.1 00,000,000 to be transferred to general reserve.
∑ Dividends on preference shares to be paid.
∑ Payment of a 6% dividend on ordinary shares.
7. Allowance for doubtful debts is to be maintained at Sh.10,000,000
8. As at 31 December 2011, emoluments due to directors was Sh4,000,000

Ignore depreciation on buildings.

Required:
(a) Income statement for the year ended 31 December 2011
(b) Statement of financial position as at 3 I December 2011
May 2012 Question One
QUESTION 8
The following balances were extracted from the books of Prestige Boutique Ltd as at 31st December
2010:
Sh“000”
Cash in hand 12,600

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REVISION PARTNER 36
Trade payables 19,500
Trade receivables 17,900
Sales 269,500
Purchases 215,200
Ordinary dividends paid 1,500
Debenture interest paid 1,000
Salaries and wages 25,400
Electricity 3,100
Sundry expenses 11,300
Suspense account (credit) 13,500
Ordinary share capital (Sh5 each par value) 45,000
10% debentures 20,000
Retained earnings (1stJanuary 2010) 24,200
General reserves (1st January 2010) 17,100
Land and buildings (1st January 2010) 43,000
Plant and machinery (1st January 2010) 83,000
Accumulated depreciation (1st January 2010)
Buildings 2,000
Plant and machinery 22,200
Inventory (1st January 2010) 19,000

Additional information:
1. The land and buildings were acquired some years ago. The cost of buildings was estimated at
sh.10,000,000. The estimated useful life of the buildings was fifty years at the time of purchase.
As at 30st December 2010, the property was to be revalued at sh. 80,000,000.
2. The suspense account is in respect of the following items:
Sh"000"
Proceeds from the issue of 1,000,000 ordinary shares 12,000
Proceeds from the sale of plant 30,000
42,000
Less consideration for the acquisition of Ngara Boutique 13,500
3. The plant which was sold had cost Sh. 35,000,000 and had a net book value of sh. 27,400,000 as
at 1stJanuary 2010.Depreciation of sh 3,600,000 is to be provided on plant and machinery for the
year ended 31st December 2010.No depreciation is provided in the year of sale.
4. The net assets of Ngara Boutique were purchased on 3 March 2010.The fair value of the assets
acquired was as follows:
Sh"000"
Available for sale financial assets 23,100
Inventories 3,400
26,500
All the inventories acquired were sold during the year. The available for sale financial assets were
still h by Prestige Boutique Ltd as at 31 December 2010.Goodwill arising on acquisition of Ngara
Boutique had been impaired as at 31 December 2010.
5. Sundry expenses include sh. 900,000 paid in respect of annual insurance up to 31 August 2011.
Electricity expenses do not include a bill of Sh300,000 for the three months ended 2 January 2011
which was paid in February 2011.Electricity expenses also include Sh2,000,000 relating to sales
men's commission.
6. The management wish to provide for:
∑ Audit fees of Sh 400,000.
∑ A transfer of Sh 1,600,000 to the general reserves.
∑ Debenture interest due.
7. Inventories as at 31 December 2010 were valued at Sh22,000,000

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 37
Required;
a) Statement of comprehensive income for the year ended 31 December 2010.
b) Statement of financial position as at 31 December 2010.

June 2011 Question One

QUESTION 9
The following trial balance was extracted from the books of Kaki Ltd as at 31 October 2010.

Sh"000" Sh"000"
Ordinary share capital(Sh. 10 each par value) 15,000
Share premium 800
10% debenture 1,000
General reserve 1,000
Revenue reserve(l November 2009) 1,620
8% redeemable preference shares 8,000
Goodwill 2,500
Inventory(l November 2009) 2,790
Purchases and sales 22,180
Discount allowed and discount received 340 502
Salaries 2,850
Rates and insurance 1,702
Office expenses 1,472
Director's remunerations 500
Interim dividends paid: Preference 320
Ordinary 1,500
Financial assets(at fair value) 8,000
Trade receivables and trade payables 2,400 2,010
Allowance for doubtful debts 280
Bank balance 1,278
Building 17,000
Furniture and fittings 1,500
Motor vehicles 3,100
Provision for depreciation: furniture and 300
fittings
Motor vehicles 450
Investment income 550
Debenture interest 50
69,482 69,482

Additional information:
1) The cost and net realisable value of the inventory as at 31 October 2010 was Sh. 3,650,000 and
Sh. 3,560,000 respectively.
2) Invoices issued amounting to Sh 365,000 had erroneously been treated as invoices received.
3) Depreciation is to be provided as follows:
Asset Rate per annum
Furniture and fittings 12.5% on reducing balance
Motor vehicles 10% on cost
Ignore depreciation on building

4) Allowance for doubtful debts is to be adjusted to Sh. 240,000.

5) Bad debts amounting to Sh. 40,000 are to be written off.
6) Insurance amounting to Sh 480,000 had been paid to cater for a period of six months up to 31
January 2011.
7) A provision for accrued debenture interest of Sh. 50,000 and preference dividend of Sh 320,000
are to be made.

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 38
8) Corporation tax for the year is estimated to be Sh. 1,614,000.
9) The directors have proposed to pay a final dividend of 10% of ordinary share capital and to
transfer Sh. 500,000 to the general reserve.

Required:
a) Income statement for the year ended 31 October 2010
b) Statement of financial position as at 31 October 2010
December 2010 Question One

The law of the

Lord is perfect,
restoring the
whole person; the
testimony of the
Lord is sure,
making wise the
simple.

Psalm 19

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 39
TOPIC 8
FINANCIAL STATEMENTS OF A MANUFACTURING
ENTITY
QUESTION 1
Carol and Mary are in partnership sharing profits and losses equally. They make handbags under the
brand name ‘CARY’.

The partnership trial balance as at 31 December 2013 was as follows:

Sh. ‘000’ Sh. ‘000’
Capital: Carol 24,000
Mary 24,000
Drawings: Carol 5,000
Mary 4,800
Land 15,200
Factory building at cost 20,400
Accumulated depreciation on factory building 15,370
Delivery vans at cost 8,100
Accumulated depreciation on delivery vans 1,912
Inventory (1 January 2013):
Raw materials 2,300
Work in progress 2,210
Finished goods (10,250 handbags at Sh.2,000 each) 20,500
Sales 63,200
Returns inward 112
Purchase of raw materials 14,590
Tax 3,960
Factory wages 7,630
Office salaries 2,500
General expenses: Factory 7,730
Office 9,470
Plant at cost 17,220
Accumulated depreciation on plant 5,870
Provision for unrealised profit (I January 2013) 2,050
Allowance for doubtful debts 770
Trade receivables and payables 10,680 2,640
Bank overdraft 4,670
148,442 148,442

Additional information:
1. During the year ended 31 December 2013. 16,727 handbags were transferred to the warehouse at
a price of sh.2, 400 each.
2. As at 31 December 2013, inventory was valued as follows:
∑ Raw materials - Sh.1, 900,000
∑ Work in progress - Sh.2, 880,000
∑ Finished goods - Sh.17, 428,800
3. All handbags are sold at Sh.3, 200 each.
4. The allowance for doubtful debts is to be maintained at 5% of the trade receivables.
5. Accrued general expenses as at 31 December 2013 were as follows:
∑ Factory - Sh.1,748,000
∑ Office - Sh.764, 000

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 40
6. As at 31 December 2013, rent and rates were prepaid as follows:
∑ Factory - Sh.104, 000
∑ Office - Sh.80, 000
7. Depreciation is to be provided on cost as follows:
Asset Rate per annum
Factory building 2%
Plant 10%
Delivery vans 20%
8. Carol is entitled to 25% of the manufacturing profit based on the transfer price to the warehouse,
while Mary is entitled to 10% of the trading gross profit.
9. No interest is credited or charged on capital accounts or drawings.

Required:
(a) Manufacturing account for the year ended 31 December 2013.
(b) Income statement of the year ended 31 December 2013
(c) Statement of financial position as at 31 December 2013

May 2014 Question One

QUESTION 2
Mboyamak limited manufacturer’s farm implements. The following list of balances was extracted
from the books of account of the company as at 31 December 2012

Shs
Inventory as at 1 January 2012
Raw materials 1,270,000
Work in progress 1,555,000
Finished goods 1,163,000
Purchase of raw materials 4,576,750
Carriage of raw materials 98,000
Direct labour 4,210,400
office salaries 1,670,950
Rent 260,000
Electricity (office) 221,000
Depreciation expense Machinery 510,000
Equipment (office) 115,000
Sales 15,931,100
Electricity (factory) 406,000

Additional information;-
1. Inventory as at 31 December 2012 was given as follows:-
Shs
Raw materials 1,445,000
Work in progress 1,230,000
Finished goods 1,442,000

2. Rent is to be apportioned between the factory and office in the ratio of 3:1
3. Finished goods are transferred from factory to sales at mark up of 20%
4. The values of opening and closing inventory are given at the transfer price

Required;-
i) Manufacturing account for the year ended 31 December 2012
ii) Income statement for the year ended 31 December 2012
May 2013 Question One

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REVISION PARTNER 41
QUESTION 3
Kate and Robert are in partnership as manufacturers of plastic bottles. Kate is responsible for the
factory operations and Robert is responsible for sales.

The following trial balance was extracted from their books as at 30 September 2012:

Sh. Sh.
Capital accounts:
Kate 4,000,000
Robert 5,000,000
Drawings:
Kate 950,000
Robert 800,000
Land at cost 3,000,000
Factory building at cost 4,000,000
Plant at cost 3,000,000
Motor vehicles at cost 800,000
Provision for depreciation (1 October 2011):
Factory building 1,500,000
Plant 800,000
Motor vehicles 160.000
Inventory(1 October2011):
Raw materials 400,000
Work-in-progress 420,000
Finished goods 5,000,000
Sales 12,000,000
Returns inward 140,000
Purchase of raw materials 2,900,000
Factory wages 1,650,000
Office salaries 480,000
General expenses:
Factory 1,250,000
Administrative 1,400,000
Allowance for doubtful debts 190,000
Trade receivables and payables 2,170,000 550,000
Bank balance 500,000
Interest free loan ________ 4,660,000
28,860,000 28,860,000

Additional information:
1. Inventory as at 30 September 2012 was valued as follows:
Shs
Raw materials 340,000
Work-in-progress 530,000
Finished goods 4,600,000
2. 370,000 plastic bottles were transferred at Sh.20 each from the factory to the warehouse during
the year.
3. Allowance for doubtful debts is to be adjusted to 10% of trade receivables as at 30 September
2012.
4. Accrued general expenses as at 30 September 2012 were as follows:
Sh.
Factory 300,000
Administrative 320,000

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 42
5. Pre-paid rates as at 30 September 2012 were as follows:
Sh.
Factory 20,000
Administrative 12,000
6. Depreciation for the year is to be provided on cost as follows:

Asset Rate per annum

Factory building 2%
Plant 10%
Motor vehicles 15%
7. Kate is credited with one-third of the manufacturing profit while Robert is credited with 10% of
the trading gross profit.
8. The net profit or loss is shared by Kate and Robert in the ratio 3:2 respectively.
9. No interest is credited or charged on capital accounts or drawings.

Required;
a) Manufacturing account for the year ended 30 September 2012.
b) Income statement for the year ended 30 September 2012.
c) Statement of financial position as at 30 September 2012.
November 2012 Question Four

QUESTION 4
d) In relation to a manufacturing concern:
i) Explain the term "cost apportionment".
ii) Explain four considerations that management should take into account in choosing the basis
or cost apportionment.
May 2012 Question Five D

QUESTION 5
Babycare Ltd is in the business of manufacturing and selling children's toy. The company operates a
small in Jiji town.
The trial balance extracted from books of Babycare Ltd on 30 April 2011 was as follows:

Sh Sh
75,000 ordinary shares of Sh. 20 each 1,500,000
General reserves 1,200,000
Retained earnings (1 May 2010) 107,440
Interim dividend paid 75,000
Bank balance 201,420
Trade payables and receivables 792,300 349,440
Land 300,000
Buildings at cost 450,000
Plant at cost 780,000
Motor vehicles at cost 318,000
Fixtures and fittings at cost 238,230
Accumulated depreciation:
Buildings 18,000
Plant 372,000
Motor vehicles 183,000
Fixtures and fittings 70,730
Inventory (1 may 2010)
Raw materials 204,330
Work-in-progress 345,960
Finished goods 650,070
Allowance for doubtful debts 41,430

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REVISION PARTNER 43
Bad debts 29,370
Rates and insurance 55,290
Direct wages 650,220
Factory power 135,360
Electricity 97,680
Maintenance expenses 65,820
Salaries 540,000
Return inwards and outwards 8,070 19,020
Advertising 51,480
Transport expense 138,270
Bank charges 17,550
Sundry expenses 174,900
Purchases and sales 5,504,280 7,362,540
15% debenture 600,000
11,823,600 11,823,600

Additional information:
1) Depreciation for the year is to be provided using the reducing balance method at the following
annual rates:
25% on motor vehicles
10% on fixtures and fittings
15% on plant
2) Buildings are to be depreciated using the straight line method at the rate of 4% per annum. This is
classified as factory expense.
3) Allowance for doubtful debts is to be adjusted to 10% of trade receivables as at 30 April 2011.
4) Electricity, insurance, rates, maintenance and sundry expenses are to be apportioned in the ratio
2:1 between factory and administration overheads respectively.
5) An amount of Sh. 180,000 posted to the direct wages account was incurred as salary for the
factory manager.
6) Debenture interest for the year had not yet been paid.
7) Inventory as at 30 April 2011 were as follows:
Sh.
Raw materials 835,530
Work-in-progress 494,700
Finished goods 618,810
8) The directors propose to pay a final dividend which will bring the dividend for the year to Sh.
2.50 per share.

Required:
(a) Manufacturing, trading and income statement for the year ended 30 April 2011.
(b) Statement of financial position as at 30 April 2011.
December 2011 Question Two

QUESTION 6
a) Distinguish between prime costs and indirect costs in the context of manufacturing accounts.
b) The following trial balance was extracted from the books of Uvumbuzi Ltd, a medium sized
factory that manufactures car batteries, as at 30 June 2010:
Sh Sh
Inventory at cost (1 July 2009) 700,000
Raw materials 1,260,000
Work in progress 2,500,000
Finished goods 850,130
Distribution costs 151,060
Returns inwards 5,186,000

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REVISION PARTNER 44
Purchases of raw materials
Sales 26,001,470
Bank balance 600,200
Freehold land and buildings (land Sh. 400,000) 1,700,000
Plant and machinery at cost 7,300,000
Office equipment at cost 1,100,000
Motor vehicles at cost 2,000,000
Accumulated depreciation (1 July 2009) 2,245,500
Plant and machinery 245,000
Office equipment 800,000
Motor vehicles
General administration expenses 630,110
Interim preference dividend paid 100,000
Bank interest 70,700
Factory lighting 300,140
Electricity 460,270
Office salaries 1,660,130
Insurance 201,160
Rates 501,710
Advertising 1,900,480
Rent 400,630
Maintenance of plant and machinery 301,020
Directors' emoluments 601,140
Manufacturing wages 5,014,000
Allowance for bad and doubtful debts 10,000
Trade receivables and payables 5,000,000 3,562,260
Ordinary share capital 4,000,000
Preference share capital 2,000,000
Revenue reserve (1 July 2009) 424,750
39,888,680 39,888,680

Additional information:
1. The authorised and fully paid share capital of the company as at 30 June 2010 was:
∑ 800,000 ordinary shares of Sh.5 each.
∑ 200,000 10% preference shares of Sh. 10 each
2. A provision for the final preference dividends and ordinary dividend of Sh 2.25 per ordinary
share made.
3. The value of inventory as at 30 June 2010 was as follows:
Sh.
Raw materials at cost 562,000
Work in progress at cost 471,900
Finished goods at transfer price 1,000,000(100 car batteries)

4. Rent, rates electricity and insurance expenses are to be apportioned in the ratio of 5:1 between
the factory and office respectively.
5. An insurance premium amounting to Sh 33,520 had been paid for a period of one year to
September 2010.
6. Rent, rates, electricity expenses that were outstanding as at 30 June 2010 amounted to Sh 23,210
and Sh 12,140.
7. Office salaries include Sh 642,370 paid to sales men.
8. Directors' emoluments include Sh 200,000 paid to the production director.
9. Prepaid rates as at 30 June 2010 amounted to Sh 31,400.
10. 1,500 batteries were completed and transferred to the warehouse at a transfer price of Sh 10,000
per unit.
11. A provision for corporation tax amounting to Sh 1,000,000 is to be made.

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 45
12. An allowance for bad and doubtful debts at 1 % of debtors as at June 2010 is to be made.
13. Depreciation is to be provided as follows:

Asset Rate per annum

Plant and machinery 15% on cost
Office equipment 10% on cost
Motor vehicles 25% on written down value
Building 2% on cost

Required:
Manufacturing, trading and income statement for the year ended 30 June 2010
December 2010 Question Three

“What you do is
what matters, not
what you think or
say or plan.”
Jason Fried.

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 46
TOPIC 9
FINANCIAL STATEMENTS OF A NOT-FOR- PROFIT
MAKING ORGANISATION
QUESTION 1
The following is the receipts and payments account for Jamii Sports Club for the year ended 30 June
2014:
Receipts and payments account
Sh. ‘000’ Sh. ‘000’
Balance brought forward 4,280 Club maintenance cost 240
Bar takings 12,600 Travelling expenses 320
Sale of sports equipment 1,200 Purchase of sports equipment 3,600
Fees collections 5,620 Purchase of furniture 2,200
Subscriptions 18,800 Field expenses 2,500
Donations 4,200 Salaries and wages 6,600
Purchase of computers 1,200
Bar purchases 8,400
Water and electricity 820
Bar wages. 1,400
External coach's fee 2,400
Secretary's honoraria 6,200
Subscription refunds 200
Bank balance 8,000
- Cash balance 2,620
46,700 46,700

Additional information:
1. The following balances were available:
30 June 2013 30 June 2014
Sh. ‘000’ Sh. ‘000’
Subscriptions in advance 1,200 1,800
Subscriptions in arrears 2,200 2,400
Club house 14,000 14,000
Sports equipment 6,800 ?
Furniture and fittings 2,400 ?
Computers 1,200 ?
Accumulated depreciation:
∑ Sports equipment 2,800 ?
∑ Furniture and fittings 800 ?
∑ Computers 300 ?
Bar receivables - 1,200
Bar payables 800 1,000
Bar wages due 180 100
Secretary’s honoraria due 350 240
Bar inventory 1,800 2,200
2. Sports equipment disposed of had been purchased at a cost of Sh.1, 800,000 and had a net book
value of Sh.1, 260,000.
3. Depreciation is to be provided on cost of existing assets as follows:
Asset Rate per annum (%)
Club house 2.5
Sports equipment 10

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 47
Computer 20
Furniture and fittings 10

4. All the new furniture and fittings relate to the bar, while the old furniture and fittings relate to the
club house.
5. During the year, bar stock stolen amounted to Sh.80, 000. This has not been accounted for.
Required:
(a) Bar income statement for the year ended 30 June 2014.
(b) Income and expenditure account for the year ended 30 June 2014.
(c) Statement of financial position as at 30 June 2014.
November 2014 Question Three

QUESTION 2
(c) Outline two advantages of an income and expenditure account as compared to a receipts and
payments account

May 2014 Question Five C

QUESTION 3
The following are the balances of assets and liabilities extracted from the books of Jenga Afya Sports
Club as at 30 June 2012 and 30 June 2013:
2012 2013
Sh."000" Sh."000"
Sports pavilion at cost 10,000 10,000
Gym equipment at cost 6,000 ?
Furniture and fittings at cost 4,000 ?
Accumulated depreciation:
Gym equipment 1,400 ?
Furniture and fittings 1,200 ?
Subscriptions received in advance 600 1,800
Subscriptions in arrears 1,200 1,500
Coach's fees outstanding 400 500
Restaurant payables 500 600
Pre-paid electricity 125 150
Restaurant inventory 1,100 1,900

The club's receipts and payments for the year ended 30 June 2013 were as follows:
Receipts Sh. ‘000’
Cash balance:
Cash in hand 2,400
Bank balance 1,650
Subscriptions 12,000
Restaurant sales 6,250
Gym services income 6,200
Sale of gym equipment 400
Payments
Restaurant purchases 4,250
Electricity bills 400
Restaurant wages 1,360
Coach's fees 3,100
Honoraria to secretary 4,600
Club maintenance expenses 200
Travelling expenses 420
Purchase of gym equipment 3,000
Purchase of furniture and fittings 1,100
Gym expenses 1,500

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REVISION PARTNER 48
Salaries and wages 1,470
Purchase of office computers 1,000
Cash balance - Cash in hand 1,500
Bank balance 5,000

Additional information:
1. Goods worth Sh.75, 000 from the restaurant were consumed by members of staff during the year
ended 30 June 2013, but were not paid for.
2. Depreciation is to be provided on cost of existing assets as follows:
Asset Rate per annum
Gym equipment 15%
Furniture and fittings 10%
Sports pavilion 5%
Office computers 20%
3. Depreciation on furniture and fittings is to be apportioned between restaurant and office at 40%
and 60% respectively.
4. 10% of the subscriptions in arrears at the beginning of the year were not received by the end of
the financial year. The management decided to write them off.
5. Gym equipment sold during the year had a cost of Sh. 1,000,000 and had been used for 3 years.
Required:
a) The restaurant income statement for the year ended 30 June 2013,
b) The income and expenditure account for the year ended 30 June 2013.
c) Statement of financial position as at 30 June 2013.
November 2013 Question One

QUESTION 4
The following is the income and expenditure account for Uzima Charitable Hospital for the year
ended 31 July 2012:
Expenditure Sh. Income Sh.
Medicine used 5,996,000 Subscriptions 11,200,000
Honoraria to doctors 2,400,000 Donations 1,900,000
Salaries 5,500,000 Income from annual walk 2,200,000
Electricity and water 95,000 Income from film show 2,290,000
Rent 1,200,000
Depreciation:
- Furniture and fixtures 420,000
- Equipment 650,000
Film show expenses 56,000
Annual walk expenses 100,000
Printing expenses 220,000
Surplus 953,000 ____
17,590,000 17,590,000

Additional information:
1 August 2011 31 July 2012
Subscriptions due 14,000 32,000
Subscription received in advance 12,800 20,000
Electricity and water bills 18,400 23,000
Furniture and fixtures at net book value 4,200,000 3,780,000
Equipment at net book value 2,320,000 2,780,000
Land - 2,000,000
Cash balance 68,000 32,000
Bank balance 1,800,000 ?
Stock of medicine 1,564,000 1,950,000

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REVISION PARTNER 49
Required:
a) Subscriptions account for the year ended 31 July 2012.
b) Receipts and payments account for the year ended 31 July 2012.
c) Statement of financial position as at 31 July 2012.

November 2012 Question Three

QUESTION 5
c) Differentiate between "receipts and payments account" and "income and expenditure account".
May 2012 Question Five C

QUESTION 6
The following is the summary of the cashbook of Mbedodo Football Club for the year ended 30 June
2011:
Receipts Sh. '000' Payments Sh. '000'
Bank balance (1 July 2010) 2,340 Casual wages 7,200
Members subscription 49,850 Bar supplies 42,300
Entrance fees 32,060 Rates 1,200
Bar sales 60,840 Rent 24,600
Competition receipts 25,820 Secretary's basic salary 18,000
Lighting and water 5,040
Competition prizes 14,400
Stationery and postage 3,840
Repairs to gymnasium 3,300
Ground upkeep 4,500
Bar manager's salary 5,400
Deposit with SACCO 35,000
Bank balance 6,130
170,910 170,910

Additional information:
1. The assets of the club on 1 July 2010 were as follows:
Sh. '000'
Land 650,000
Gymnasium and equipment 250,000
Bar inventory 10,800
Prizes in hand 4,800
2. Bar supplies owing amounted to Sh. 4,200,000 on 1 July 2010
3. On 30 June 2011 the bar inventory was Sh. 9,600,000, prizes in hand - Sh. 2,400,00 and Sh.
5,640,000 was owing for bar supplies.
4. The secretary is to receive a leave allowance of 5% of his basic salary. It was also agreed that the
bar manager should receive aSh. 500,000 bonus for increased sales during the year.
5. From the register of members, it appeared that unpaid subscriptions as at 30 June 2011 totaled
Sh. 5,100,000. Subscriptions received during the year included Sh. 2,550,000 in respect of the
previous year and Sh. 1,700,000 in respect of the year starting 1 July 2011.
6. Interest earned on the deposit with the SACCO for the year ended 30 June 2011 amounted to Sh.
1,750,000
7. The rent paid was for fifteen months up to 30th September 2011
8. The gymnasium and equipment are to be depreciated at the rateof 10% per annum on straight
line basis

Required;-
a) Income and expenditure account for the year ended 30 June 2011
b)
2. Statement of financial position as at 30 June 2011
December 2011 Question Four

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REVISION PARTNER 50
TOPIC 10
ANALYSING FINANCIAL STATEMENTS
QUESTION 1
(b) Shark Ltd. has presented the following financial statements:
Income statement for the year ended 31 August 2014
Sh.
Sales 11,510,100
Cost of sales (5,928,500)
Gross profit 5,581,600
Investment income 22,680
Distribution cost (1,963,680)
Administrative expenses ( 1,363,520)
Operating profit 2,277,080
Finance cost (316,000)
Profit before tax 1,961,080
Income tax expense (631,480)
Profit for the year 1,329,600

Statement of financial position as at 31 August:

2014 2013
Sh. Sh.
Assets:
Non-current assets at cost 26,100,540 21,410,160
Accumulated depreciation (5,919,340) (5,003,760)
Net book value 20,181,200 16,406,400
Current assets:
Inventory 6,601,760 5,825,920
Trade receivables 2,485,500 3,465,280
Cash and cash equivalents 237,840 214,160
9,325, 100 9,505,360
29,506,300 25,911,760
Equity and liabilities:
Ordinary share capital 8,400,000 6,000,000
Share premium 3,156,800 2,570,000
Revaluation reserve 2,981,600 1,636,800
Retained earnings 7,989,600 7,276,000
22,528,000 17,482,800

Non-current liabilities:
9% loan stock 2,693,600 3,530,000
Current liabilities:
Trade payables 3,802,200 4,380,480
Taxation 482,500 518,480
4,284,700 4,898,960
29,506,300 25,911,760

Additional information:
1. The company made a profit of Sh.26, 400 on tile sale of equipment whose cost was Sh.359, 220
and whose accumulated depreciation was Sh.79, 220.
2. The only revaluation on non-current assets was for a piece of freehold land.
3. An interim dividend of Sh.616, 000 had been declared and paid in the course of the year.

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REVISION PARTNER 51
Required:
Statement of cash flow in accordance with International Accounting Standard (IAS) 7 "Statement of
Cash Flows" for the year ended 31 August 2014.
November 2014 Question Five B
QUESTION 2
(a) Summarise three limitations of ratio analysis.
(b) The following financial statements were extracted from the books of Majengo Ltd. for the years
ended 31 December 2012 and 2013:
Income statements for the years ended 31 December:
2012 2013
Sh. ‘000’ Sh. ‘000’
Sales (all on credit) 200,000 200,000
Cost of sales (120000) (100,000)
Gross profit 80,000 100,000
Expenses (60,000) (60,000)
Net profit 20,000 40,000
Dividends 20,000 (20,000)
Retained profit - 20,000
Balance carried forward 25,000 25,000
Balance brought forward 25,000 45,000

Statements of financial position as at 31 December:

2012 2013
Sh. ‘000’ Sh. ‘000’
Non-current assets:
Land 63,000 44,000
Plant and machinery at cost 6,000 8,500
Buildings at cost 79,000 60,000
Investments at cost 80,000 53,000
228,000 165,500
Current assets:
Inventory 65,000 55,000
Trade receivables 50,000 40,000
115,000 95,000
Current liabilities:
Trade payables 60,000 40,000
Proposed dividend 20,000 20,000
Bank balance 4,000 2,500
(84,000) (62,500)
Net current assets 31,000 32,500
Net assets 259,000 198,000
Financed by:
Ordinary share capital 50,000 40,000
Share premium 14,000 13,000
Revaluation reserve 20,000
Revenue reserve 25,000 45,000
10% debentures 150,000 100,000
259,000 198,000

Additional information:
1. Ordinary shares with a nominal value of Sh.1 0,000,000 were repurchased at a premium during
the year. All necessary approvals were obtained for this transaction.
2. Part of the debentures was redeemed at par during the year.
3. Ignore taxation.

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 52
Required:
The following ratios for Majengo Ltd. for the years ended 31December 2012 and 2013:
(i) Gross profit margin.
(ii) Net profit margin.
(iii)Trade receivables turnover.
(iv) Acid test ratio.
(v) Dividend cover.
(vi) Gearing ratio.
(vii) Return on capital employed (ROCE)

May 2014 Question Four

QUESTION 3
a) The following are extracts from the financial statements of SOY Ltd as at 31 March;
2013 2012
Sh. ‘000’ Sh. ‘000’
Non current assets
Freehold land and buildings 50,400 36,000
Plant and machinery 17,580 19,050
Investment at cost 10,800 11,250
Goodwill 8,400 8,700
87,180 75,000
Current assets
Inventory 30,150 26,100
Trade receivables 18,420 23,400
Short term investments 5,130 2,520
Cash in hand 600 1,290
54,300 53,310
Total Assets 141,480 128,310
Equity and Liabilities
Ordinary share capital 54,000 45,000
Share premium 4,500 2,250
Revaluation reserve 13,500 -
Revenue reserve 18,450 15,750
90,450 63,000
Non current liabilities
14% loan stock 22,500 27,000
Current liabilities
Trade payables 17,550 15,750
Bank overdraft 7,170 19,600
Proposed dividend 1,350 1,140
Taxation 2,460 1,800
28,530 38,310
Total equity and liabilities 141,480 128,310

Additional information;-
1. The income statement extract for the year ended 31 March 2013 is as follows:-
Sh. ‘000’ Sh. ‘000’
Profit before tax 7,200
Less corporation tax 2,700
Profit after tax 4,500
dividends: Interim paid 450
Proposed 1,350 1,800
Retained earnings 2,700

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REVISION PARTNER 53
2. During the year, plant with a net book value of Sh. 2,250,000 was sold for Sh. 4,410,000. The
plant had originally cost Sh. 9,000,000
3. Part of the investment was sold during the year at a profit of Sh. 480,000
4. Depreciation on plant and machinery amounting to Sh. 3,450,000 was charged to the income
statement during the year.
5. During the year impairment of goodwill was estimated to be Sh. 1,260,000
6. The revaluation reserve relates to freehold land and building

Required;
Statement of cash flow in accordance with international Accounting Standard (IAS) 7 “Statement
of Cash flow”
b) Discuss three categories of financial ratios

May 2013 Question Four

QUESTION 4
d) Explain four limitations of ratio analysis.
November 2012 Question Five C

QUESTION 5
a) Explain three reasons why in many organisations the cash flow for a given period differs from the
profit realised by the organisation in the same period.
November 2012 Question Two A

QUESTION 6
The following arc the statements of financial position of Big Ben Ltd. as at 30. September 2010 and
30 September 2011
2010 2011
Assets Sh “000” Sh “000”
Non-current assets:
Property, plant and equipment 38,180 57,612
Investments available for sale 2,500 1,000
40,680 58,612
Current assets:
Inventories 8,280 10,350
Trade receivables 40,140 5,038
Cash in hand and bank 1,700 -
14,120 15,388
Total assets 54,800 74,000
Equity and liabilities:
Ordinary share capital 31,600 45.400
Share premium 2,760 5,520
Retained profit 6,900 11,040
41,260 61,960
Non-current liabilities:
10% debentures 5,260 1,000
Current liabilities:
Trade payables 2,760 4,140
Taxation 3,450 4,140
Dividends 2,070 2,070
Bank overdraft - 690
8,280 11,040
Total equity and liabilities 54,800 74,000

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 54
The following is an extract from the income statement of Big Bcn Ltd. for the year ended 30
September 2011:
Sh “000” Sh “000”
Operating profit 12,520
Finance cost (100)
Profit before tax 12,420
Income tax expense (4,830)
Profit after tax 7,590
Dividends - Paid (1,380)
- Proposed (2,070) (3,450)
Retained profit 4,140

Additional information:
1) An item of plant was disposed of during the year ended 30. September 2011 for Sh.2,070,000.
The item had cost Sh.4,140,000 and had an accumulated depreciation ofSh.1,380,000. At the
same time new premises were acquired at a cost of Sh.25,200,000.
2) There was no acquisition or disposal of investments.

Required:
Statement of cash flows for the year ended 30 September 2011 in conformity with International
Accounting. Standard (IAS) 7 - statement of cash flows.
May 2012 Question Four

QUESTION 7
Janet and Ruth are sole proprietors carrying on business as wholesalers. Their financial statements for
the year ended 31 March 2011 were as follows:

Income statements for the year ended 31 March 2011:

Janet Ruth
Sh. "000" Sh. "000"
Sales 144,000 140,000
Cost of sales
Opening inventory 28,000 3,200
Purchases 124,000 121,600
152,000 124,800
Closing inventory (32,000) (4,800)
120,000 120,000
Gross profit 24,000 20,000
Distribution costs 7,200 2,800
Administrative expenses 8,160 9,500
15,360 12,300
Net profit 8,640 7,700

Statement of financial position as at 31 March 2011:

Janet Ruth
Sh. "000" Sh. "000"
Assets
Non-current assets
Freehold property 20,000 14,000
Fixtures, fittings and equipment 21,750 13,840
Motor vehicles 12,000 6,000
53,750 33,840
Current assets
Inventories 32,000 4,800

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REVISION PARTNER 55
Accounts receivable 28,800 11,200
Bank balances 8,950 11,360
69,750 27,360
Total assets 123,500 61,200
Capital and liabilities
Capital 108,000 30,800
Accounts payable 15,500 30,400
Total capital and liabilities 123,500 61,200

Additional information:
1. The amounts of accounts receivable and accounts payable have not changed significantly over
the year. All the sales are on credit.
2. All the non-current assets are at written down values.
3. Assume that inventories increased evenly over the year.

Required:
a) For each business, compute the following:
i) Three (3) profitability ratios.
ii) Current ratio.
iii) Acid test ratio.
iv) Inventory turnover ratio.
v) Total assets turnover ratio.
vi) Accounts receivable turnover ratio
b) Using the ratios computed in (a) above, comment on the performance of each business

June 2011 Question Four

QUESTION 8
The following are the statements of financial position of Chakaza Ltd as at 30 June 2010:
30 June 2009 30 June 2010
Non-current assets Sh “000” Sh “000” Sh “000” Sh “000”
Buildings at cost 11,040 13,800
Accumulated depreciation on
(2,070) 8,970 (2,415) 11,385
buildings
Plant and equipment at cost 13,800 23,460
Accumulated depreciation (6,210) 7,590 (8,625) 14,835
Motor vehicles at cost 4,600 5,518
Accumulated depreciation (2,070) 2,530 (2,932) 2,586
19,090 28,806
Current assets
Inventory 4,140 5,175
Trade receivable 2,070 2,519
Cash and cash equivalents 850 7,060 (345) 7,349
26,150 36,155
Financed by:
Ordinary share capital 15,800 22,700
Share premium 1,380 2,760
Revenue reserve 3,450 5,520
10 % debentures 1,380
22,010 30,980
Current liabilities
Trade payables 1,380 2,070
Corporation tax 1,725 2,070
Dividends 1,035 4,140 1,035 5,175
26,150 36,155

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REVISION PARTNER 56
The following is an extract from the income statement for the year ended 30 June 2010:
Sh. "000" Sh. "000"
Operating profit before tax 6,210
Tax expense (2,415)
3,795
Dividends: Interim paid 690
Final proposed 1,035 (1,725)
Profit transferred to revenue reserve 2,070

Additional information:
1. The 10 % debentures were redeemed at a premium of 10 % during the year ended 30 June 2010.
2. An equipment was disposed of during the year ended 30 June 2010 for Sh 1,035,000.The
equipment been bought for Sh. 2,070,000 and had an accumulated depreciation of Sh. 690,000.
Required:
Statement of cash flows for the year ended 30 June 2010 in conformity with International Accounting
Standards (IAS 7) - Statement of Cash Flows
December 2010 Question Four

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TOPIC 11
FINANCIAL STATEMENTS OF PUBLIC SECTOR ENTITIES
QUESTION 1
(a) Highlight six purposes of public sector accounting.
November 2014 Question Four A

QUESTION 2
(b) The following were the approved estimates and actual expenditure for the Ministry of health for
the financial year ended 30 June 2013:
Item Details Approved Actual expenditure
estimate
Sh."000" Sh."000"
0300 Transport 76,500 73,100
0301 Travel and subsistence 88,400 86,700
0500 Personal emoluments Electricity 102,000 96,900
0700 expense 81,600 76,500
0240 Staff development 15,980 17,510
0900 Purchase of equipment 166,600 166,600
0400 Other allowances 116,960 113,390
1000 Appropriations- in-aid 133,960 125,800

Drawings from the Exchequer during the financial year ended 30 June 2013 amounted to
Sh.127, 500,000.
Required:
(i) General account of vote.
(ii) Exchequer account.
(iii) Paymaster general account.
May 2014 Question Three B

QUESTION 3
b) Uzuri County Council authorised the construction of a city hall on 1 July 2012. The hall was
expected to cost Sh. 160,000,000. The project was to be financed as follows:
Sh. 80,000,000 from a 6.5% bond issue.
Sh. 64,000,000 from a government grant.
Sh. l6,000,000 from the general fund.
The following transactions and events took place during the year ended 30 June 2013:
1. The county council transferred Sh. 16,000,000 from the general fund to the city hall capital
fund. The capital project fund was for the purpose of construction of the city hall.
2. Planning and architects fees amounting to Sh.6,400,000 were paid.
3. The contract was awarded for Sh. 152, 000,000.
4. The 6.5% bonds were sold for Sh. 80,320,000 and the amount of the premium transferred to
the debt service fund.
5. The contract was certified 50% complete and an invoice for Sh.76,000,000 was received from
the contractor.
The contractor was paid the invoiced amount less 10% retention
Required:
i) Journal entries to record the above transactions.
ii) Statement of revenue and expenditure of the capital project fund for the year ended 30 June
2013.
iii) Statement of financial position of the capital project fund as at 30 June 2013.
November 2013 Question Two B

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QUESTION 4
The following were the estimates and actual expenditure of Barani Ministry of Youth and Sports for
the financial year ended 30 June 2012.
Item Details Estimates Actual
Sh. ‘000’ Sh. ‘000’
0201 Basic salaries 96,000 92,400
0201 Other personal allowances 18,900 21,420
0400 Utilities, supplies and services 56,300 47,800
0450 Printing and stationery 12,400 12,100
0250 Travelling expenses 42,500 44,700
0280 Training expenses 9,200 7,300
0305 Maintenance and repairs of equipment 2,500 1,880
0500 Grants to youth clubs 8,900 8,900
Gross expenditure 246,700 236,500
0600 Appropriations in-aid 15,000 12,500
Net expenditure 231,700 224,000

Drawings from the exchequer during the financial year ended 30 June 2012 amounted to
Sh.226,000,000

Required;
a) General account of vote
b) Exchequer account
c) Paymaster general (PMG) account
d) Appropriation account for the year ended 30 June 2012
e) Statement of assets and liabilities as at 30 June 2012
May 2013 Question Five

QUESTION 5
c) The following details relate to the approved estimates and actual expenditure of a certain
government ministry for the financial year ended June 2012.
Vote number Particulars Approval estimates Actual expenditure
Sh. “000” Sh. “000”
000 Personal emoluments 1,800,000 1,900,000
050 House allowances 300,000 260,000
080 Passages and leave 100,000 90,000
110 Travel and subsistence 440,000 460,000
140 Electricity and water 120,000 130.000
220 Purchase of equipment 1,000,000 800,000
650 Appropriations-In-Aid 300,000 240,000

Supplementary estimates authorised during the year were as follows:

Vote number Particulars Sh. “000”
080 Passages and leave 170,000
110 Travel expenses (40,000)

Required;-
Appropriation account for the year ended 30 June 2012.
November 2012 Question Two B
QUESTION 6
b) Explain the following terms in the context of public sector accounting:
i) Commitment accounting
ii) Fund accounting
May 2012 Question Five B

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QUESTION 7
a) Explain three roles of the International Public Sector Accounting Standards Board (IPSASB).
May 2012 Question Two A

QUESTION 8
b) Explain the meaning of the following terms in relation to Public Sector Accounting:
i) Appropriation-In-Aid
ii) Paymaster general
iii) General Account of Vote
iv) Exchequer Account
December 2011 Question Five B

QUESTION 9
b) The Ministry of Finance estimated the revenue from licences for the year ended 30 June 2010 to be
follows:
Vote head Particulars Sh."millions"
011 Trade licences 765
012 Hotel and restaurant licences 900
013 Export licences 955
014 Registration of bank licenses 1,050
015 Professional licences to practice 75
016 Mining licences 1,450
017 Liquor licences 500

During the year, the treasury introduced a new vote head 018, second hand clothes licences under
supplement estimate number 1.The estimated revenue from this vote head was Sh450 million.
The actual revenue during the year was as follows:

Vote head Particulars Sh. "million"

011 Trade licences 875
012 Hotel and restaurant licences 817
013 Export licences 1,403
014 Registration of bank licences 1,110
015 Professional licences to practise 60
016 Mining licences 1,625
017 Liquor licences -
018 Second hand clothes licences 475

Additional information:
1. The balance of revenue from licences as at 1 July 2009 was Sh. 325 million.
2. As at 30 June 2010, the amount of revenue from licences due to the Exchequer was Sh124 million
Required:
Statement of revenue for the year ended 30 June 2010.
June 2011 Question FiveB
QUESTION 10
a) Identify four benefits that would accrue to the government as a result of adopting the International
Public Sector Accounting Standards(IPSASs)
b) Government expenditure is classified into recurrent expenditure and development expenditure.
Citing two examples, explain the two categories of expenditure.
c) The International Public Sector Accounting Standards (IPSASs) recommend the use of accrual
basis of accounting for public sector entities.
d) Discuss the case for and against the use of accrual basis of accounting in the public sector.
Highlight the importance of using accounting standards as the basis for preparing financial
statements.
December 2010 Question Five

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SOLUTIONS
TOPIC 1
INTRODUCTION TO ACCOUNTING
QUESTION 1
a) How prudence concept is applied on
i) Valuation of inventory
Based on prudence, the accounting standard states that inventories should be valued for the
purposes of the financial statements at cost or net realisable value, whichever is lower.
ii) Valuation of receivables
Receivables are normally reported at their net realizable value, which is the amount the
company expects to receive in cash.
iii) Valuation of shares held as investments quoted on securities exchange
The shares should be valued at the current market value and should be valued at their cost
since this will be violating the prudence concept.
iv) The valuation of land and buildings
Based on prudence, land and buildings should be valued for the purposes of the financial
statements at cost or market value, whichever is lower.

November 2014 Question One A

QUESTION 2
a) Principles of code of ethics that govern the professional conduct of accountants
(i) Integrity
This refers to the need for a professional accountant to be straightforward and honest in
performing professional services. This is to ensure their services are reliable and creditability is
not doubted by the users.
(ii) Objectivity
A professional accountant should be fair and should not allow prejudice or bias, conflict of
interest or influence of others to override objectivity. This again ensures reliability and credibility
of the work done.
(iii) Confidentiality
A professional accountant should respect the confidentiality of information acquired during the
course of performing professional services and should not use or disclose any such information
without proper and specific authority or unless there is a legal or professional right or duty to
disclose. This is to ensure the information provided is not used by other parties to the detriment of
the client.
(iv) Professional competence and due care
A professional accountant should perform professional services with due care, competence and
diligence and has a continuing duty to maintain professional knowledge and skill at a level
required to ensure that a client or employer receives the advantage of competent professional
services based on up-to-date developments in practice, legislation and techniques. This ensures
the reliability and
(v) Professional behaviour
A professional accountant has a continuing duty to maintain professional knowledge and skill at
the level required to ensure that a client or employer receives competent professional service
based on current developments in practice, legislation and techniques. A professional accountant
should act diligently and in accordance with applicable technical and professional standards when
providing professional services.
May 2014 Question Five A

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QUESTION 3
a) Users of accounting information and their information needs
i. Suppliers
Suppliers would like to have information on the financial performance and position so as to
assess whether the business would be able to pay up for the goods and services provided as
and when the payments fall due.
ii. Government and its agencies
The government is interested in the financial performance of the business to be able to assess
the tax to be collected in case there are any profits made by the business.
The other agencies are interested with the financial position and performance of the business
to be able to come up with national statistics. This statistics measure the average
performances of the economy.
iii. Customers
They would like to know how the business is performing and its financial position. This
information would enable them to asses whether they can rely on the firm for future supplies.
iv. The lenders
They would like to have information on the financial / performance of the business to assess
whether the business is profitable enough to pay the interest and loans and whether it has
resources to pay back the principal amount when it is due such lenders include banks and
other financial institutions
v. Employees
They would like to have information on the financial position and performance so as to make
decision on their terms of employment. This will help them to negotiate for better terms
including salaries training and other benefits
May 2013 Question Two A

QUESTION 4
a. Meaning of the following accounting concepts;-
i. The consistency concept:
The consistency concept states that in preparing accounts consistency should be observed in two
respects.
a) Similar items within a single set of accounts should be given similar accounting treatment.
b) The same treatment should be applied from one period to another in accounting for similar
items. This enables valid comparisons to be made from one period to the next.
ii. The materiality concept:
It states that an item is considered material if it’s omission or misstatement will affect the decision
making process of the users. Materiality depends on the nature and size of the item. Only items
material in amount or in their nature will affect the true and fair view given by a set of accounts.

An error that is too trivial to affect anyone’s understanding of the accounts is referred to as
immaterial. In preparing accounts it is important to assess what is material and what is not, so that
time and money are not wasted in the pursuit of excessive detail.

b. Distinguish between;
i. “Cash basis of accounting” and “accrual basis of accounting”
Cash basis Accrual basis
1 Revenues are recorded when they are Revenues are recorded when they are
received, which may be before or after earned, which may be before or after
they are earned. they are received.
2 Expenses are recorded when they are Expenses are recorded when they are
paid, which may be before or after they incurred, which may be before or after
are incurred. they are paid.
3 Financial statements reflect revenues Financial statements match revenues to
and expenses based on when the expenses incurred in earning them,

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transactions were entered rather than and more accurately reflect the results
when revenues were earned or of operations.
expenses incurred.
4 No receivables are recorded. A receivable is recorded when payment
is not received at the point of sale.
5 No payables are recorded. Payables are recorded when payment is
not made at the time of purchase.
6 No method of tracking partial Revenues and expenses are recorded in
payments is available full, even though partial payments may
be made over extended time periods
November 2012 Question Five A andB (I)
QUESTION 5
i. Accrual
It explains thatrevenue and costs are accrued (that is, recognized as they are earned or incurred, not as
money is received or paid) matched with one another so far as their relationship can be established or
justifiably assumed, dealt with in the profit and loss account of the period to which they relate; but if
the accruals concept conflicts with the prudence concept then the prudence concept prevails

ii. Going concern

Explains thatthe enterprise will continue in operational existence for the foreseeable future. This
means that the profit and loss account and the balance sheet assume no intention or necessity to
liquidate or curtail significantly the scale of operation.
May 2011 Question Three A
QUESTION 6
a) Qualities of useful accounting information with reference to the International Account
Understandability: an essential quality of the information provided in the financial statements is that
it is readily understandable by users .For these reason users are assumed to have a reasonable
knowledge of business and economic activities and accounting.

Relevance: information in financial statements should influences the economic decisions of users by
helping them evaluate past, present or future events or confirming or correcting their past evaluations.
The relevance of information is affected by its nature and materiality.

Reliability: information is useful when it is free from material error and bias and can be depended
upon by users to represent faithfully that which it purports to represent or could reasonably be
expected to represent. To be reliable then the information should:
∑ Be represented faithfully.
∑ Be accounted for and presented in accordance with their substance and economic reality and not
merely their legal form,
∑ Be neutral i.e. free from bias,
∑ Include some degree of caution especially where uncertainties surround some events and
transactions (Prudence),
∑ Be complete i.e. must be within the bounds of materiality and cost. An omission can cause
information to be false.

Comparability: Users must be able to compare the financial statements of an enterprise through time
in order to identify trends in its financial position and performance. Users must also be able to
compare the financial statements of different enterprises. Therefore users must be informed of the
different accounting policies. Changes in the various policies and the effect of these changes in the
accounts.
Compliance with International ccounting standards Promotes comparability of financial statements
among different organizations.
June 2011 Question Five A

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TOPIC 2
RECORDING TRANSACTIONS
QUESTION 1
a) Benefits of a customised accounting system
∑ Personalization;-Customized accounting systems can be tweaked and customized based on the
owner's needs and preferences.
∑ Scalability;-Many customized accounting systems offer various add-on packages or modules,
allowing businesses to decide exactly how big their system should be. As the business
continues to grow and change, it can purchase more add-ons and incorporate them into the
existing system with ease.
∑ Flexibility;-Customized accounting systems are extremely flexible. Because they are fully
customizable, they can be altered as needed to adapt to new developments or other changes
within the company.
∑ Competitive advantage;-When a business utilizes a customized accounting system, it gains a
significant advantage over the competition. Because these systems are more efficient and
effective, the business will have a better handle on its finances than other companies with less
sophisticated systems.
∑ Owners with customized accounting systems can benefit from outsourcing support to a third-
party with the skill and experience necessary to maintain the system.

November 2014 Question Five A

QUESTION 2
b) Accounting tasks performed by computerized accounting software packages are:
∑ Managing customer invoices, payments, outstanding balances, bad debts and customer
statements.
∑ Managing suppliers' invoices, returns, orders and payment due.
∑ Production of income statement showing the profitability for the period.
∑ Producing the VAT and other tax reports for submission to the revenue authority.
∑ Reporting on top selling products and most purchased items.
∑ Reconciliation of cash books and bank statements
∑ Reporting on total cash received and payments.
∑ Posting of bank account transactions and tracking the entity expense items.

November 2013 Question Five B

QUESTION 3
a) Applications of accounting software packages
∑ Accounts receivable—where the company enters money received
∑ Accounts payable—where the company enters its bills and pays money it owes
∑ General ledger—the company's "books"
∑ Billing—where the company produces invoices to clients/customers
∑ Stock/Inventory—where the company keeps control of its inventory
∑ Purchase Order—where the company orders inventory
∑ Sales Order—where the company records customer orders for the supply of inventory
∑ Cash Book—where the company records collection and payment
∑ Debt Collection—where the company tracks attempts to collect overdue bills (sometimes part
of accounts receivable)
∑ Electronic payment processing
∑ Expense—where employee business-related expenses are entered
∑ Inquiries—where the company looks up information on screen without any edits or additions

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∑ Payroll—where the company tracks salary, wages, and related taxes
∑ Reports—where the company prints out data
∑ Timesheet—where professionals (such as attorneys and consultants) record time worked so
that it can be billed to clients
∑ Purchase Requisition—where requests for purchase orders are made, approved and tracked

May 2012 Question Five A

QUESTION 4
c) Explain five challenges facing organizations that use computerized accounting software
∑ Computerized systems are always at risk of being hacked, power failure, viruses and losing
information.
∑ Systems can be costly as they require constant updating and staff need to be trained to
effectively use the system.
∑ Security issues are posed with a risk of computer fraud.
∑ Human error is often not as quickly identified, and records input need to be validated for
accuracy.
∑ Computerized systems can be difficult to understand and if the systems are not specifically
adapted or set up for the business it can cause havoc to the accounts.
December 2011 Question Five C

In battle it is the coward

who run the most risk;
bravery is a rampart of
defense.

Sallust.

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TOPIC 3
ACCOUNTING FOR ASSETS AND LIABILITIES
QUESTION 1
b) Azimio Ltd
i) Adjusted cash book
Azimio Ltd
Adjusted Cash Book
Sh. ‘000’ Sh. ‘000’
Reported balance 322 Hire purchase repayments 660
Under cast 200 Loan interest 1,100
Dividends received 1,147 Bank charges 143
Transposition error 45 Dishonoured cheque 180
Balance c/d 838 Cheque-under cast 9
- Cheque-error 460
2,552 2,552

ii) Bank reconciliation statement

Azimio Ltd
Bank Reconciliation Statement
Sh. ‘000’ Sh. ‘000’
Balance as per the bank statement (870)
Add back
Error-cheque debit 82
Un-credited deposits 580 662
(208)
Less
Un-presented cheques (630)
Balance as per updated cashbook (838)

November 2014 Question One B

QUESTION 2
a) Property, plant & equipment movement schedule
MATATIZO LTD
Schedule of movement of property plant and equipment for
The year ended 31st December 2013
Freehold Buildings Plant and Motor Total
land machinery vehicles
Sh. ‘000’ Sh. ‘000’ Sh. ‘000’ Sh. ‘000’ Sh. ‘000’
st
Cost as at 1 Jan. 2013 30,000 38,520 70,200 37,800 176,520
Additions 24,000 18,000 42,000
Disposal (10,800) (12,600) (23,400)
Fully depreciated (13,500) - (13,500)
Cost as at 31st December 2013 30,000 38,520 69,900 43,200 181620
Depreciation as at 1st Jan. 2013 37,812 23,040 60852
Disposals (3,816) (9,240) (13056)
Annual charge - 963 8,132.59 11,160 20,255.5
Depreciation as at 31st Dec. 2013 0 963 42,128.5 24,960 68,051.5
N.B.V as at 31st December 2013 30,000 37,557 27,771.5 18,240 113,568.5

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Workings
W1 - Plant & machinery
Plant & Machinery
Sh. Sh.
1.1.13 Balance b/d 70,200 Bank 10,080
Cash 13,500 Bad debt w/o 13,500
Cash 10,500 Bal. c/d 60,620
84,200 84,200

Depreciation working for plant & machinery

Sh ‘000’
70200 x 10% 7,020
13500 x 10% x 6/12 675
10500 x 10% x 5/12 437.5
8,132.5

Depreciation on disposals
On disposed machine Sh. ‘000’
1.7.2009 – 31.12.09 = 6/12 × 10,080 × 10% = 540
2010 – 2012 = 3 × 10,080 × 10% = 3,024
2013 = 3/12 × 10,080 × 10% = 252
3,816
W2 - Motor vehicles

Motor Vehicles a/c

Sh. ‘000’ Sh. ‘000’
1.1.13 Balance b/d 37,800 Disposals 12,600
Trade in 18,000 Balance c/d 43,200
55,800 55,800

Depreciation on motor vehicles Sh ‘000’

37,800 x 20% = 7,560
18,000 x 20% x 1 = 3,600
11,160

Depreciation on disposals
Sh. ‘000’
8
1.5.09 – 31.12.09 = /12 × 12,600 ×20% 1,680
2010 – 2012 = 3 × 12,600 × 20% 7,560
9,240

W3 - Building
Depreciation for the year
2.5% ×38,520 = 963
May 2014 Question Three A
QUESTION 3
c)
i) Sales ledger control account
Furahia Enterprises
Sales ledger and control account
Sh.000 Sh.000
Balance b/d 14,280 Balance b/d 1,680
Debt collection expenses 480 Bad debts written off 720
Interest charged 384 Receipts from customers 11,280

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Dishonoured cheques 1,260 Contra settlements 390
Credit sales 17,340 Credit notes 270
- Discounts allowed 1,080
Balance c/d 1,110 Balance c/d 19,434
34,854 34,854

ii) Purchases ledger control account

Furahia Enterprises
Purchase ledger control account
Sh.000 Sh.000
Balance b/d 1 ,920 Balance b/d 6,720
Credit notes 1 ,860 Interest charged 588
Payments to creditors 7,680 Credit purchases 7,440
Contra settlements 390 Balance c/d 1,050
Discount received 690 -
Balance c/d 7,038 -
15,798 15,798

November 2013 Question Five C

QUESTION 4
(c) Distinguish between ‘purchased goodwill’ and ‘non-purchased’ goodwill
Goodwill is the term used to describe the difference between the value added/placed upon a firm and
the sum of the values of identifiable net assets of that firm. Goodwill is said to exist when a firm is
earning profits over and above normal earnings of other similar enterprises in the same industry.

Purchased goodwill is the difference between the amount paid to acquire a part or the whole of a
business as a going concern and the value of the net assets owned by the business.

Purchased goodwill = Total price - value of net identifiable assets.

Non-purchased goodwill is inherently generated and not a subject of acquisition. It arises out of a
subjective valuation but not through a market transaction. It should not be recognised in the financial
statements
November 2013 Question Three A

QUESTION 5
(a)Explain the following methods of measurement of elements in financial statements:
(i) Historical cost
Assets are recognised at the actual, or cash equivalent or fair value expended to acquire them at the
time of their acquisition. Liabilities are recorded at the actual amount received in exchange for the
obligation or the amount expected for settlement of liability.

(ii) Net realisable value

Assets are recorded at the amount of cash or cash equivalent by reference to the amount that could be
received if it is disposed in an orderly manner. Liabilities are carried at their settlement value in the
normal course of business.

(iii) Present value

Assets are recorded at the present discounted value of the future net cash inflows the item is expected
to generate in the normal course of business. Liabilities are recorded at present discounted value of the
expected outflow necessary to settle them.
November 2013 Question Two A

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QUESTION 6
b) Bank reconciliation statement
Best way Limited
Updated cashbook as at 31 March 2013
Sh. ‘000’ Sh. ‘000’
Balance b/d 5,710 Bank charges 137.5
Skyline ltd 230 Bottom line Co. ltd 2,500
________ Balance c/d 3,302.5
5,940 5,940

Best way Limited

Bank reconcilliation statement as at 31 March 2013
Sh. ‘000’ Sh. ‘000’
Balances as per updated cash book 3,302.5
Add Unpresented cheques
Hellen cheque number 4,100 515
Joseph Baraka cheque number 4,103 55
Good Samaritan cheque number 4,104 342.5 912.5
4,215
Less: Uncredited cheques
R. Nafula 1,300
David and partners 205 1,505
Balance as per bank statement 2,710

May 2013 Question Two B

QUESTION 7
b) Movement schedule
Jabali limited
Schedule of movements of plant for the year ended 2008, 2009, 2010 and 2011
2008 2009 2010 2011
Sh'000' Sh'000' Sh'000' Sh'000'
Asset cost
as at 1 January 80,000 80,000 80,000 90,000
Additions - - 25,000(w1) 50,000
Disposals - - (15,000) (30,000)
Cost as at 31 December 80,000 80,000 90,000 110,000

Depreciation
At start - 16,000 28,800 36,700
Annual charge 16,000 12,800 15,220(w2) 20,660(w4)
On disposal - - (7,320) (17,712)
Cumulative for the year 16,000 28,800 36,700 39,648
NBV as at 31.12 64000 51,200 53,300 70,352

Workings
W1
Plant 2010 account A
Sh. ‘000’ Sh. ‘000’
Balance b/d 80,000 Disposal 15,000
Bank 25,000 Balance c/d 90,000
105,000 105000

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W2
Provision for depreciation on plant
Sh. ‘000’ Sh. ‘000’
Disposal 7,320 Balance b/d 28,800
Balance c/d 36,700 W3Depreciation 15,220
44,020 44020

For 2008 20% × 15,000 = 3,000

For 200920% × 12,000 = 2,400
For 2010 20% ×9,600 = 1,920
7,320
W3
Plant 2011 account B
Sh. ‘000’ Sh. ‘000’
Balance b/d 90,000 Disposal 30,000
Bank 50,000 Balance c/d 110,000
140,000 140,000

W4
Provision for depreciation on plant B
Sh. ‘000’ Sh. ‘000’
Disposal 17,712 Balance b/d 36,700
Balance c/d 39,648 Depreciation 20,660
57360 57360

20% x 30,000 = Shs. 6,000,000

20% x 24,000 =shs. 4,800,000
20% x 19,200 = shs. 3,840,000
20% x15, 360 = shs. 3,072,000
= 17,712,000

Gain or loss on disposal of plant A and B

Plant at account
Sh. ‘000’ Sh. ‘000’
Balance c/d 15,000 Disposal 15,000
______ _____
15,000 15,000

Disposal of plant A account

Sh. ‘000’ Sh. ‘000’
Plant A 15,000 Bank 8,000
Gain on disposal 320 Accumulated depreciation 7,320
- -
15,320 15,320

Plant B Account
Sh. ‘000’ Sh. ‘000’
Balance b/d 30,000 Disposal 30,000
______ _____
30000 30000

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REVISION PARTNER 70
Disposal of plant B account
Sh. ‘000’ Sh. ‘000’
Plant B 30,000 Bank 21,000
Gain on disposal 7,712 Accumulated
depreciation 17,712
35,640 37,712

May 2012 Question Two B

QUESTION 8
i)
Motor vehicles account
2006 Sh. 2006 Sh.
1st June bank (KB 099S) ST
9,000,000 31 December Balance c/d 9,000,000
9,000,000 9,000,000
2007
1st January balance b/d 9,000,000 31st December balance c/d 21,000,000
1st April bank (KB 120T) 12,000,000 -
21,000,000 21,000,000
2008 Sh. 2008 Shs.
1st January balance b/d 21,000,000 1st October disposal (KB 099S) 9,000,000
1st June bank (KB 120T) 6,000,000 31st December Balance c/d 18,000,000
27,000,000 27,000,000
2009 Shs 2009 Shs.
1st January balance b/d 18,000,000 31ST December disposal (KB 440X) 6,000,000
31st Dec. Trade in (KB 419Y) 8,000,000 31st December Balance c/d 20,000,000
26,000,000 26,00,000

2010 Shs 2010 Shs.

A January Balance b/d 20,000,000 31st Dec. Balance. c/d (KB 099S) 24,800,000
1st April bank 9KB 890B) 4,800,000 -
24,800,000 24,800,000
ii)
Provision for depreciation of motor vehicles account
2006 Sh. 2006 Sh
31st December Bal. c/d 525,000 31st December Depre. Exp (KB 099S) 525,000
525,000 525,000
2007 Sh. 2007 Sh.
31st December Bal. c/d 2,325,000 1 January Balance c/d 525,000
31st December Depre exp (KB 099S) 900,000
- 31 December Depre exp. 9KB 120T) 900,000
2,325,000 2,325,000
2008 Sh. 2008 Shs.
1st October Disposal 2,100,000 1 January Balance b/d 2,325,000
31ST December depr exp. (KB 099S) 675,000
31st December depr exp. (KB 120T) 1,200,000
31st December Balance. c/d 2,450,000 31st December depr exp. (KB 340X) 350,000
4,550,000 4,550,000
2009 Sh. 2009 Sh.
31st December Disposal 1,425,000 Balance b/d 2,450,000
Depre. Adjst (KB 120T) 1,050,000
Depre. adjst (KB 340X) 175,000
Depre. exp (KB 120T) 1,800,000
31st December balance c/d 4,950,000 Depre. Exp (KB 340T) 900,000
6,375,000 6,375,000

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REVISION PARTNER 71
2010 Sh. 2010 Sh.
1 January Bal b/d 4,950,000
1 January Depre exp. (KB 120T) 1,800,000
1 January Depre exp. (KB 419Y) 1,200,000
31 December balance c/d 8,490,000 3 January Depre. Exp. (KB 890B) 540,000
8,490,000 8,490,000
iii)
Disposal of motor vehicles account
2008 Sh 2008 Sh.
1 October: Motor lorries 9,000,000 31 December, provision for depreciation 2,100,00
Bank 2,600,000
- Loss on disposal 4,300,000
9,000,000 9,000,000

2009 Sh. 2009 Sh.

1 October: Motor Lorries 6,000,000 31 December: Provision for deprecation 1,425,000
Trade in 2,600,000
- Loss on disposal 1,975,000
6,000,000 6,000,000

June 2011 Question Three B

QUESTION 9
a) Distinguish between “allowance for bad and doubtful debts” and “bad debts”.
Allowance for bad and doubtful debts is the amount set aside to cater for future debts that might
never be paid.

Bad debts are credit sales that are not paid by a debtor or debtors due to; bankruptcy, death,
insanity and collapse of business enterprise or long term imprisonment.
November 2011 Question Five A

“What you do is what

matters, not what you
think or say or plan.”
Jason Fried.

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REVISION PARTNER 72
TOPIC 4
CORRECTION OF ERRORS AND SUSPENSE
ACCOUNT
QUESTION 1
b) Types of errors that could be reflected in trial balance
∑ Single sided entry – a debit entry has been made but no corresponding credit entry or vice
versa.
∑ Debit and credit entries have been made but at different values.
∑ Two debit or two credit entries have been posted.
∑ An incorrect addition in any individual account, i.e. miscasting.
∑ Opening balance has not been brought down.
∑ Extraction error – the balance in the trial balance is different from the balance in the relevant
account or the balance from the ledger account has been placed in the wrong column of the
trial balance.

May 2014 Question Five B

QUESTION 2
a) Four types of bookkeeping errors which are not disclosed by a trial balance
i) Error of Commission
This is an error in which the accountant records a transaction in the correct class of
account, in the correct side but in the wrong name of the account.
For example, a sale of goods on credit to Kenyani was recorded by debiting Kenyani’s
account.
ii) Error of Principle
This is an error committed due to lack of accounting principles. That is, a transaction is
recorded in the wrong class of account, e.g. if a fixed asset such as motor van is debited to
an expense account such as motor vehicle expenses account.
iii) Error of Complete Reversal of Entries
This is where the correct accounts are used to record a transaction but each item is shown
on the wrong side of the account. For example, suppose we had paid a cheque to Ondieki
for Shs 200, the double entry of which is Cr. Bank Shs 200, Dr. Ondieki Shs 200, Dr.
Bank Shs 200. The trial balance totals will still agree.
iv) Compensating Errors
This is an error that occurs both on the debit side of an account and on the credit side of
an account and the figures are equal which cancel each other.
E.g Sales account was undercast by Shs 20,000 and Purchase ledger was undercast with
Shs 20,000. The net effect is neutral and the trial balance will still balance.
v) Error of original Entry
Where the original figure is incorrect, yet double entry is still observed using this
incorrect figure. An instance of this could be where there were sales of Shs 150 goods but
an error is made in calculating the sales invoice. If it were calculated as Shs 130 and Shs
130 and Shs 130 were credited as sales and debited to the personal account of the
customer, the trial balance would still “balance”.
vi) Error of omission
Where a transaction is completely omitted from the books, the trial balance will still
agree.
vii) Transposition Errors
Where the wrong sequence of the individual characters within a number was entered e.g.
385 instead of 358 in the debit and credit entries, the trial balance would still agree.

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REVISION PARTNER 73
b. Bernard Masita
i)
Suspense account
Sh Sh
Balance b/d 442,000 Purchases 150,000
Salaries 90,000 Samuel Njuguna 500,000
Discount received 59,000 -
Discount allowed 59,000 -
650,000 650,000
ii)
Statement of corrected gross profit
Sh Sh
Gross profit as per the books of 1,985,000
accounts
Adjustments:
Drawing inform of goods 220,000
Purchases daybook (150,000)
Purchases account 125,000
Returns outwards 21,000
Sales overturned by returns (21,000) 195,000
Corrected Gross Profit 2,180,000

iii) Statement of corrected net profit

Sh Sh
Net profit as per the accounts 1,229,000
Add:
Salaries account 90,000
Discount allowed (reversal) 59,000
Discount received 59,000 208,000
Less;
Office stationery 125,000
Bad debts 22,500 (147,500)
Corrected Net Profit 1,289,500

December 2010 Question Two A&B

QUESTION 3
a) A trial balance is a memoranda statement of credit and debit balances as they appear in the ledger
accounts. The double entry accounting method ensures that for every debit entry there is a
corresponding credit entry and vice versa. Therefore all items on the debit side of a trial balance
should be equal to the total items on the credit side. It therefore gives a prima facie evidence that
the process of bookkeeping has been correct.
b)
No Details Dr Cr
Sh Sh
1. Suspense a/c 2,000
Discount allowed a/c 2,000
(To correct discount allowed overstated)

2a). Electricity a/c 36,710

P & L a/c 36,710
(To record electricity due)

b) P & L a/c 22,450

Insurance a/c 22,450
(To record insurance prepaid)

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REVISION PARTNER 74

3. Bank a/c 126,550

Cash a/c 126,550
(To record cash deposit)

4. Wages a/c 765,820

Bank a/c 765,820
(To record payment of wages)

5a) Repairs a/c 500,000

Office premises a/c 500,000

b) Provision for depreciation a/c 10,000

P & L a/c 10,000
(To correct depreciation overcharge)

6a) Creditors CB Ltd a/c 163,040

Debtor CB Ltd a/c 163,040
(To record offset accrual)

7. Provision discount allowed 72,130

P&L 72,130
(To record reduction in provision of discount
allowed)
8a) 64,800
Bad debts a/c 64,800
Debtors a/c
(To record bad debts)
bi) 21,440
Debtors a/c 21,440
Bad debts recovered a/c
(To record creation of bad debts recovered)
ii) 21,440
Bank 21,440
Debtors
(To record cheque from debtor)
iii) 21,440
Bad debt recoverable 21,440
P&L
(To record bad debt recovered)

QUESTION 4
a)
No Details Dr Cr
Sh Sh
1. Accounts Receivable 10,000
Sales a/c 10,000

2a). Sales a/c 20,000

Disposal a/c 20,000

b) Disposal a/c 90,000

Equipment a/c 90,000

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REVISION PARTNER 75
c) Provision for Depreciation a/c 72,000
Disposal a/c 72,000

d) Disposal a/c 2,000

P & L a/c 2,000

3. Accounts Payable a/c 15,000

Returns outwards 15,000

4. Suspense a/c 7,000

Bank overdraft 7,000

5. Accounts Payable a/c 1,800

Suspense a/c 1,800

6. Rent expenses a/c 1,000

Suspense a/c 1,000

7. Suspense 2,000
Sundry expenses 2,000

8. Accounts Payable a/c 16,400

Suspense a/c 16,400

9a) Sales return 9,600

Accounts receivable 9,600

b) Trading (Stock) a/c 7,200

Trading (Cost of sales) 7,200

10. Suspense 1,200

Discount Allowed 1,200

b)
Suspense a/c
Sh ‘000’ Sh ‘000’
Bal b/d 9,000 Accounts Payable 1,800
Bank overdraft 7,000 Rent Expenses 1,000
Sundry expenses 2,000 Account Payable 16,400
Discount allowed 1,200 _____
19,200 19,200
c)
Statement of corrected net profit for the year ended 31st Dec 2005
Shs Shs
Balances as per the balance sheet 153,200
Add:
Sales undercast 10,000
Proceed on disposal 2,000
Returns outwards 15,000
Sundry expenses 2,000
Closing stock Trading a/c 7,200
Discount Allowed 1,200 37,400
190,600
Less:
Sales undercast

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 REVISION PARTNER 76
Rent expenses 20,000
Sales returns 1,000
Corrected profit 9,600 (30,600)
160,000
d)
Cost Acc. Dep N.B.V
Sh ‘000’ Sh ‘000’ Sh ‘000’
Non Current Assets 360,000 168,000 212,000
Equipment 300,000 150,000 150,000
Furniture 600,000 300,000 300,000
Motor vehicle 1,260,000 618,000 662,000

Current Assets
Inventory 130,000
Account receivable (w1) 20,000
Deposit Account 50,000 200,000
862,000
Financed by:
Capital a/c 652,000
Net profit 160,000
Drawings (13,200) 798,800
Current liabilities
Bank overdraft (w2) 15,000
Account payable (w3) 48,200 63,200
862,000

Workings:
1. Accounts Receivable 2. Bank Overdraft
Sh ‘000’ Sh ‘000’ Sh ‘000’ Sh ‘000’
Bal. b/d 19,600 Sales returns 9,600 Bal. b/d 8,000
Sales 10,000 Bal. c/d 20,000 Bal c/d 15,000 Suspense 7,000
19,600 19,600 15,000 15,000

2. Accounts Payable
Sh ‘000’ Sh ‘000’
Return O/W 15,000 Bal. b/d 81,400
Suspense 1,800
Suspense 16,400
Bal. c/d 48,200 _____
81,400 81,400

QUESTION 5
a) Explain:
i. Error of commission occurs when the correct amount is entered in the correct class, but in the
wrong account i.e. instead of the account of debtor Mutiso with sales, debtors Mutisya is
debited.
ii. Error of principle is where a transaction is entered in the wrong class of account e.g.
purchases of a motor vehicle is recorded in the purchases account.
iii. Complete reversal of entries. This is where the transaction is recorded in the correct account
but each item in the wrong side of the account e.g. Sh 5,000 to debtor Smith is debited to
sales account and credited to debtors Smith’s account.
iv. Compensating error: This is where an error is cancelled by another error e.g. If debtors are
overstated by Sh 5,000 then the creditors are also overstated by the same amount. These two
errors would cancel out in the trial balance since the totals of both debit and credits are
overstated by Sh 5000.

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REVISION PARTNER 77
b) i)
No Details Dr Cr
Sh Sh
1. Suspense a/c 4,000,000
Loan a/c 4,000,000
(To correct loan from a director wrongly posted)

2. Motor vehicle a/c 2,860,000

Motor vehicle expenses a/c 2,860,000
Suppliers a/c 5,720,000
(To correct purchase of motor vehicle wrongly recorded)

3. Bad debts recovered a/c 80,000

Ogola a/c 80,000
(To correct receipt from a debtor wrongly recorded in the
bad debts recovered a/c

4. Bank charges a/c 38,000

Bank a/c 38,000
(To record omitted bank charges)

5a). Discount allowed 184,000

Suspense a/c 184,000
b) Suspense a/c 397,000
Discount received a/c 397,000
(To record discount entered only once)

6a). Plant a/c 1,600,000

Plant repairs a/c 1,600,000
P & L a/c 320,000
Provision for depreciation 320,000
(To correct plant and depreciation charge for the year
wrongly recorded)
ii)
Suspense a/c
Sh ‘000’ Sh ‘000’
Loan 4,000,000 Trial balance 4,213,000
Discount received 397,000 Discount allowed 184,000
4,397,000 4,397,000

QUESTION 6
a) i) Journal entries are used to correct errors in ledger accounts.
ii) Writing off bad debts.
iii) Opening of new set of books.
iv) Journal entries are used to record purchase and sale of fixed assets on credit.
b) i)
No Details Dr Cr
Sh Sh
1. Purchases 4 ,000
Creditors 4,000
(Purchases undercast)

2. Fixtures and fittings 3,000

Repairs 3,000
(Fixtures debited to repairs)

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REVISION PARTNER 78

3. Debtors 2,000
Suspense 2,000
(Debtors omitted)

4. Sales 500
Debtors 500
(Returns outwards entered in sales book)

5. Creditors 2,500
Suspense 2,500
(Payment to credit entered wrong side)

6. Drawings 10,000
Stock 10,000
(Drawings omitted)

7. Bad debts 1,250

Stock 1,250
(Drawings omitted)

8. Suspense 9,000
Discount received 9,000
(Discount received entered wrong side)

ii)
Statement of adjusted profit (or loss)
Sh Sh
Reported profit 200,000
Add: Repairs 3,000
Returns outwards 500
Stocks (drawings) 10,000 13,500
213,500
Less: Purchases 4,000
Depreciation 15% x 3,000 450
Discount received 9,000
Bad debts 1,250 14,700
Corrected net profit 198,800

Corrected balance sheet 31st June 2005

Sh Sh Sh
Capital 225,000 Fixed Assets
Profit for the year 198,800 Fixtures and fittings 63,000
433,800 Less: Depreciation (25,450) 37,550
Less drawings (160,000) Machinery 75,000
263,800 Less Depreciation (20,000) 55,000
Current liabilities 92,550
Creditors 76,000 Current Assets
Suspense 4,000 Stock 140,000
Debtors 85,250
____ Bank 25,000 250,250
342,800 342,800

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REVISION PARTNER 79
Workings:
Suspense a/c Drawing a/c
Sh ‘000’ Sh ‘000’ Sh ‘000’ Sh ‘000’
Disc. rec 9,000 Bal. b/d 500 Bal c/d 15,000
Debtors 2,000 Stock 10,000 Balancec/d 160,000
Creditors 2,500 160,000 160,000
____ Bal b/d 4,000
9,000 9,000

Stock a/c Creditors a/c

Sh ‘000’ Sh ‘000’ Sh ‘000’ Sh ‘000’
Bal b/d 150,000 Drawings 10,000 Suspense 2,500 Bal. b/d 74,500
______ Bal c/d 140,000 Bal c/d 76,000 Purchases 4,000
150,000 150,000 78,500 78,500

Debtors a/c Provision for depreciation

Sh ‘000’ Sh ‘000’ Sh ‘000’ Sh ‘000’
Bal b/d 85,000 Sales 500 Bal c/d 25,450 Bal. c/d 25,000
Suspense 2,000 Bad debts 1,250 ____ P&L 450
____ Bal c/d 85,250 25,450 25,450
87,000 87,000

QUESTION 7
a) i) Error of principle
It occurs where a transaction is entered in the wrong class of account e.g. purchases of a motor
vehicle is recorded in the purchases account.
ii) Errors of commission
It occurs when the debit or credit entry is made in the right class but in the wrong account e.g. a
purchases of goods for Sh 440 from C. Simon was entered in C. Simpson’s account.
b)
Joshua MwaloJournal Entries
No Details Dr Cr
Sh Sh
1. Debtors a/c 10,440
Suspense a/c 10,440
(To correct the undercast in the debtors account)
2. Bank a/c 72,900
Suspense a/c 72,900
(To correct the overcast in creditors account)
3. Creditors a/c 42,960
Suspense a/c 42,960
(To correct the overcast in creditors account)
4. Equipment 144,000
General Expenses 144,000
(To correct an error of principal)
5. Bank a/c 87,720
Suspense a/c 87,720
(To correct the undercast on the debit side bank account.)
6. Electricity a/c 8,240
Bank/ cash a/c 8,240
(To correct an error of omission.)
7. Suspense 29,700
Sales 29,700
(To correct an error of undercast in the sales account.)

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 80
Suspense a/c
Sh ‘000’ Sh ‘000’
Bal b/d 184,320 Debtors 10,440
Sales 29,700 Cash book 72,900
Creditors 42,960
______ Bank 87,770
214,020 214,020

QUESTION 8
a) Suspense a/c b) Statement showing the correct Net Profit
Sh Sh Sh Sh
Bal b/d 2,240 Sales 3,000 Profit as per the balance sheet 10,500
Debtor 1,560 Cash 500 Add: Drawings 850
____ Debtor 300 Stock undercast 10,000 10,850
3,800 3,800 Less: Sales overcast 3,000
Bank charges 850 (3,850)
Corrected Net Profit 112,000

Ali Osman
Adjusted Balance Sheet as at 30 April 2006
Sh. Sh.
Non Current assets
Buildings 200,000
Plant and machinery 150,000 350,000
Current assets
Stock (w1) 50,000
Debtors (w2) 30.660
Bank balance (w3) 49,150
Cash balance (w3) 5,040 134,850
484,850
Capital and Liabilities
Creditors (w4) 33,700
Capital account 420,000
Add adjusted profit 112,000
Drawings (w5) (80,850)
484,850

Workings
1. Adjusted a/c 2. Debtor’s a/c
Sh ‘000’ Sh ‘000’ Sh ‘000’
Unadjusted balance 40,000 Bal b/d 32,220 Suspense 1,560
Add undercast 10,000 ____ Bal. c/d 30,660
50,000 32,220 32,220

3. Cashbook
Bank Cash Bank Cash
Sh ‘000’ Sh ‘000’ Sh ‘000’ Sh ‘000’
Bal b/d 50,000 4,340 Bank charges 850 -
Suspense ____ 500 Bal. c/d 49,150 5,040
50,000 5,040 50,000 5,040

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REVISION PARTNER 81
4. Creditors a/c 5. Drawings
Sh ‘000’ Sh ‘000’ Sh ‘000’
Suspense 300 Bal b/d 34,000 Cash 80,000
Bal c/d 33,700 _____ Expenses 850
34,000 34,000 80,850

QUESTION 9
a)
Wanji Adjusted trial balance
As at 31st December 2001
Shs Shs
Fixed assets 832,000
Stock: opening stock 148,000
Trade debtors 76,000
Prepayments 10,000
Trade creditors 34,600
Bank overdraft 15,200
Accruals 16,000
Drawings 359,600
Capital 1,05 4,000
Sales 1,043,200
Provision for depreciation 166,400
Purchases 733,000
Operating expenses 126,000
Provision for doubtful debts 3,800
Discount received 5,800 5,000
Discount allowed 47,800 ____
Suspense a/c 2.338,200 2,338,200

b)
Journal Entries to Correct Errors
Dr Cr
Shs Shs
1. Sales 25,700
Suspense a/c 25,700
To correct an overcast in the sales figure
NB: Narrations are not required

2(i) Fixed assets 40,000

Purchases 40,000

(ii) P & L: Depreciation for the year 2,000

Provision for depreciation 2,000

3. Creditors 17,000
Suspense a/c 17,000

4. Operating expenses 900

Telephone 900

5. Suspense a/c 15,000

Debtors 15,000

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REVISION PARTNER 82
6. Suspense a/c 5,000
Discount allowed 2,500
Discount received 2,500

7. Purchases a/c 28,000

Suspense a/c 28,000

c)
Suspense Account
Sh ‘000’ Sh ‘000’
Bal b/d 47,800 Sales 25,700
Telephone 900 Creditors 17,000
Debtors 15,000 Purchases 28,000
Discount allowed 2,500
Discount received 2,500
Balance c/d 2,000 -
70,700 70,700
d)
Adjusted Net Profit
Sh ‘000’
Net profit 85,800
Adjustments
Overcast sales (25,700)
Overcasted purchases 40,000
Depreciation (2.000)
Telephone expenses overcast 900
Discount allowed (2,500)
Discount received 2,500
Purchases undercasted (28,000)
Adjusted NET PROFIT 71,000

“Seek knowledge from

the cradle to the
grave”.

Muhammad .

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REVISION PARTNER 83
TOPIC 5
FINANCIAL STATEMENTS OF A SOLE TRADER
QUESTION 1
a) Income statement
Lucy Wabetta
Income Statement for the year ended 30 September 2014
Sh.000 Sh.000 Sh.000
Sales (w1) 9,788,000
Cost of sales
Opening inventory 490
Purchases (w2) 7,099
Closing inventory (590) 6,509 (6,999)
Gross profit 2,789
Discount received 110
2,899
Profit on disposal of saloon car(w5) 10
Expenses
Insurance (w3) 76
Depreciation Motor vehicle – Pickup(w4) 260
Repairs 65
Postage & Stationery 136
Motor vehicle expenses 335
Salaries & wages 1,510
Rent (w6) 266 (2,648)
261

b) Statement of financial position

Lucy Wabetta
Statement of Financial Position as at 30 September 2014
Cost Acc. Depre. Net Book
Value
Sh.000 Sh.000 Sh.000
Non-Current Assets
Motor vehicle – Pickup 1,300 260 1,040

Current Assets
Trade account receivable (950-30) 920
Inventory 590
Bank 201
Prepayments 20 1,731
2,771
Capital and liabilities
Capital (w8) 2,225
Profit 261

Current liabilities
Trade accounts payable 259
Accruals – Rent 26
2,771

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REVISION PARTNER 84
Workings
W1
Trade Accounts Receivable Account
Sh.000 Sh.000
Balance b/d 732 Bank 9,600
Sales 9,788 Balance c/d 950
10,550 10,550
W2
Trade Accounts Payable Account
Sh.000 Sh.000
Bank 7,200 Balance c/d 470
Discount received 110 Purchases 7,099
Balance c/d 259 -
7,569 7,569

W3
Insurance Account
Sh.000 Sh.000
Balance b/d 16 Income statement 76
Bank 80 Balance c/d 20
96 96
W4
Motor vehicle pick-up
20% × 1,300,000 = Sh. 260,000

W5
Saloon Car Account
Sh. ‘000’ Sh. ‘000’
Balance b/d 1,000 Disposal 1,000

Saloon Car Disposal Account

Sh. ‘000’ Sh. ‘000’
Saloon car 1,000 Cash 210
Profit on disposal 10 Provision for depreciation 800
1,010 1,010
W6
Rent Account
Sh. Sh.
Bank 260,000 Balance b/d 20,000
Balance c/d 26,000 Income statement 266,000
286,000 286,000
W7
Statement of affairs as at 1 October 2013
Sh. ‘000’ Sh. ‘000’ Sh. ‘000’
Non-current assets
Motor vehicle – Saloon 1,000 800 200

Current assets
Inventory 490
Prepayment 16
Trade receivables 732
Bank 197 1,435
1,635

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REVISION PARTNER 85
Capital & Liabilities
Capital 1,145

Current liabilities
Trade payables 470
Accrual rent 20 490
1,635

W8
Capital Account
Sh. ‘000’ Sh. ‘000’
Drawings 920 Balance b/d 1,145
Balance c/d 2,225 Cash 2,000
3,145 3,145

November 2014 Question Two

QUESTION 2
a. Income statement
Biashara Kalawa Enterprises
Income statement
For the year ended 31st October 2011
Sh. Sh.
Sales 4,691,280
Sales returns (79,420)
4,611,860
Cost of sales
Opening inventory 1,393,480
Purchases 2,303,840
Free samples (48,840)
Purchase returns (120,340)
Closing inventory (1,366,200) (2,161,940)
Gross profit 2,449,920
Incomes
Discount received 93,720
2,543,640
Expenses
Commission to agent (w1) 45,000
Depreciation (w2): Motor Vehicle 69,300
: Furniture and fittings 27,060
Increase in allowance for doubtful debts(w6) 2,250
Salaries and wages(w3) 1,069,000
Discount allowed 54,560
Electricity(w4) 118,340
Rent & rates 54,560
Postage &phone expenses 44,000
Bad debts 15,840
Insurance premiums(w7) 12,000
Motor vehicle expenses 84,920
Interests on loan(w8) 33,000
Stationery(w5) 25,570
Free samples 48,840 (1,704,240)
Net profit 839,400

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 REVISION PARTNER 86
b. Statement of financial position

Biashara Kalawa Enterprises

Statement of financial position
As at 25th November 2011
Sh. Sh. Sh.
Non-current assets Cost Acc. Dep. NBV
Freehold premises 1,569,700 - 1,569,700
Furniture and fittings 334,400 90,860(w2) 243,540
Motor vehicles 462,000 245,300(w2) 216,700
2,029,940
Currents assets
Inventory 1,336,200
Stationery 8,750
Trade receivables (w9) 878,750
Bank 568,260
Cash 91,400
Prepayment (insurance) 1,200 2,914,560
Total assets 4,944,500

Equity & liabilities

Capital 4,104,100
Income statement 839,400
Less: drawings (660,000)
4,283,500
Current liabilities
Commission payable 45,000
Trade payables 330,000
Accruals – salary 35,000
Electricity 14,500
Loan interest payable 16,500 441,000
Non-current liabilities
15% bank loan 220,000
4,944,500

Workings

W1
Sales commission = 15% x 300,000 = sh. 45,000

W2 Depreciation: Fix &Fitt = 10% (334,400 -63,800) =Sh 27,060

Acc dep = Sh27,060+63,800 =Sh 90,860
: Motor Vehicle =15% (462,000) =Sh 69,300
Acc dep = Sh69,300+176,000 =Sh 245,300

W3 Salaries and wages account

Shs Shs
Cash 1,034,000 Income statement 1,069,000
Balance c/d 35,000 _____
1,069,000 1,069,000

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REVISION PARTNER 87
W4 Electricity account
Shs Shs
Cash 103,840 Income statement 118,340
Balance c/d 14,500 _____
118,340 118,340

W5 Stationery account
Shs Shs
Cash 34,320 Income statement 25,570
_______ Balance c/d 8,750
34,320 34,320

W6
Allowance on bad and doubtful debts 5% x 925000 = 46,250

Allowance for bad and doubtful debts account

Shs Shs
Balance c/d 46,250 Balance b/d 44,000
______ Income statement 2,250
46,250 46,250
W7
Insurance Expenses
Balance b /d 1,200
Income statement 12,000 Balance c/d 13,200
13,200 13,200

W8
Bank loan interest account
Cash 16,500 Income statement 33,000
Balance c/d 16,500 -
33,000 33,000

W9
Trade receivables account
Shs Shs
Balance b/d 925,000 Allowance bad debts 46,250
- Balance c/d 878,750
925,000 925,000

November 2011 Question One

QUESTION 3

Patel and Sons

Trading and Profit and Loss Account for the Year Ended 31 December 2005
Sh‘000’ Sh‘000’ Sh ‘000’
Sales 1,352,000
Cost of sales
Opening stock 80,000.00
Purchases (w1) 989,080.00 1,069,080.00
Closing stock (100,000.00) (969,080.00)
Gross profit 382,920.00

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 REVISION PARTNER 88
Expenses
Rent (w2) 9,600.00
Salaries 37,820.00
Bad debts 4,000.00
Increase in provision for bad debts (w3) 2,410.00
Printing expenses 4,600.00
Postage 3,000.00
Travelling expenses (w4) 18,200.00
Telephone expenses (w5) 3,200.00
Miscellaneous 85,412.00
Insurance Premium (w6) 1,906.67
Legal fees 1,000.00
Depreciation (w7) – Furniture 834.00
- Machinery 11,200.00
Loss on disposal – Furniture (w8) 1,240.00 (184,422.67)
Net profit 198,497.33

Patel and Sons

Balance Sheet as at 31 December 2005
Cost Acc. Dep. N. B. V
Sh ‘000’ Sh ‘000’ Sh ‘000’
Noncurrent Asset
Machinery 112,000.00 11,200.00 100,800.00
Furniture (w9) 16,680.00 834.00 15,846.00
128,680.00 12,034.00 116,646.00
Current Assets
Stock 100,000.00
Debtors (w10) 167,390.00
Bank 34,788.00
Cash 8,500
Prepayment 173.33 310,851.33
427,497.33
Capital and Liabilities
Liabilities
Creditors 83,400.00
Sundry creditors (800.00) 82,600.00

Capital 180,000.00
Net profit 198,497.33
Drawings (33,600.00)
427,497.33

Workings:

1. Purchases a/c 2. Rent a/c

Sh‘000’ Sh‘000’ Sh ‘000’ Sh ‘000’
Bal. b/d 990,000.00 Furniture 920.00 Bal b/d 19,200.00 Drawings 9,600.00
_______ Bal c/d 989,080.00 ______ Bal. c/d 9,600.00
990,000.00 Bal. b/d 990,000.00 19,200.00 19,200.00

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 REVISION PARTNER 89
3. Provision for bad debts a/c 4. Travelling a/c
Sh ‘000’ Sh ‘000’ Sh ‘000’ Sh ‘000’
Bal. c/d 8,810.00 Bal. b/d 6,400.00 Bal b/d 15,800.00 P & L 18,200.00
- P&L 2,410.00 Suspense 2,400.00 ______
8,810.00 8,810.00 18,200.00 18,200.00

5. Miscellaneous a/c 6. Insurance premium a/c

Sh ‘000’ Sh ‘000’ Sh ‘000’ Sh ‘000’
Bal. b/d 83, 612.00 P & L 85,412.00 Bal b/d 2,080.00 Bank 173.33
Suspense 1,800.00 ______ ______ Bal c/d 1,906.67
85,412.00 85,412.00 2,080.00 2,080.00

7. Depreciation
Machinery: 10% x Sh 112, 000,000 = Sh 11,200,000
Furniture: 5% x 16,680,000 = Sh 834,000

8. Disposal a/c (furniture) 9. Furniture a/c

Sh ‘000’ Sh ‘000’ Sh ‘000’ Sh ‘000’
Furniture 2, 400.00 Furniture 1,160.00 Bal b/d 17,000.00 Disposal 2,400.00
_______ Loss on Disp 1,240.00 T-in-A 1,160.00
2,400.00 2,400.00 Purchases 920.00 Bal c/d 16,680.00
19,080.00 19,080.00

10. Debtors a/c 11. Suspense a/c

Sh ‘000’ Sh ‘000’ Sh ‘000’ Sh ‘000’
Bal. b/d 177,800 Bad debts 1,600 Bal b/d 6,000 Travelling 2,400
Prov. for bad debts 8,810 Legal fees 1,000
_____ Bal c/d 167,390 Miscellaneous 1,800
177,800 ____ ______ Sundry creditors 800
177,800 6,000 6,000

QUESTION 4
a) Trading profit and loss account
Mohammed Kagame
Trading and Profit and Loss Account for the Year Ended 31 October 2004
Sh Sh Sh
Sales 4,904,520
Opening stock 556,440
Purchases 3,726,060
4,282,500
Closing stock (593,040)
Cost of sales (3,689,460)
Gross profit 1,215,060
Rent received: paid 45,000
Due 15,000 60,000
1,275,060
Gain on disposal (w1) 51,000
Expenses 1,326,060
Rent and rates: Paid 52,800
Prepaid (2,400) 50,400
Electricity: paid 14,760
Due 6,000 20,760
Salaries and wages 496,080
Insurance: paid 10,320

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 REVISION PARTNER 90
Prepaid (2,820) 7,500
General expenses 55,980
Motor vehicle expenses 51,660
Depreciation (w2) 84,000
Bad debts written off 20,160
Prov. for bad debts (w2) 3,240 (789,780)
Net profit 536,280

b) Statement of financial position

Mohammed Kagame
Balance Sheet as at 31 October 2005
Cost Acc. Dep. N. B. V
Sh Sh Sh
Fixed Assets
Premises 600,000 - 600,000
Motor vehicles 420,000 204,000 216,000
1,020,000 204,000 816,000
Current Assets
Stock 593,040
Debtors 433,200
Bank 90,000
Rent receivable 15,000
Cash 4,920
Prepayments (w4) 5,220 1,141,380
Total Assets 1,957,380
Current liabilities
Creditors 327,720
Accruals 6,000 333,720
Financed by:
Capital 1,216,260
Drawings (128,880)
Net profit 536,280 1,623,660
1,957,380

Workings:
1. Disposal a/c 2. Depreciation
Sh Sh Motor vehicle 20% x (580,000 – 160,000)
M. Vehicle 160,000 Cash 115,000 = Sh 84,000
P&L 51,000 Depreciation 96,000
211,000 211,000

3. Provision for bad debts adjusted 4. Prepayments

Debtors 476,160 Rent Sh 2,400
Less bad debts Furniture (20,160) Insurance Sh 2,820
456,000 Sh 5,220
5% x 456,000 = Sh 22,800
22,800 – 19,560 = Sh 3,240

5. Provision for depreciation a/c

Sh Sh
Disposal 96,000 Bal. b/d 216,000
Bal. c/d 20,400 P&L 84,000
300,000 300,000
Bal. b/d 20,400

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 REVISION PARTNER 91
QUESTION 5
a) Mali Mingi
Trading profit and loss account for period ended 31 March 2004
Sh Sh
Sales (w1) 8,000,000
Cost of sales (4,800,000)
Gross profit 3,200,000
Other Income:
Discount received 144,000
Commission received 52,800 196,800
3,396,800
Expenses
Discount allowed 194,400
Trade expenses (w2) 888,000
Motor vehicle expenses (w3) 842,400
Depreciation (w4) Buildings 60,000
Motor vehicle 120,000
Stock loss 480,000
Obsolete stock 120,000 (2,704,800)
Net profit 692,000

b) Mali Mingi Sole Distribution Agent

Balance Sheet as at 31st March 2004
Cost Acc. Dep. N. B. V
Sh Sh Sh
Non Current Assets
Buildings 1,200,000 780,000 420,000
Motor vehicle 600,000 360,000 240,000
1,800,000 1,140,000 660,000
Current assets
Stock (w5) 264,000
Debtors 804,000
Prepayment 9,600
Bank and cash (w6) 1,605,200
Commission receivable 5,800 2,735,600
Total Assets 3,395,600
Liabilities and Capital
Liabilities
Creditors 1,140,000
Accruals 63,600 1,203,600

Capital (w7) 2,016,000

Net profit 692,000
Drawings (516,000)
3,395,600
Workings

1. Debtors a/c 2. Trade expenses a/c

Sh Sh Sh Sh
Bal. b/d 756,000 Discount allowed 194,400 Bal b/d 14,400 P & L a/c 888,000
Sales 8,000,000 Bank (bal. figure) 7,757,600 Bank 883,200 Bal. c/d 9,600
_______ Bal. c/d 804,000 897,600 897,600
8,756,000 8,756,000

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 REVISION PARTNER 92
3. Motor vehicle expenses a/c 4. Depreciation
Sh Sh i) Building = 5% ×1200,000 = 60,000
Bank 806,400 P & L a/c 27,600 Accumulated depreciation 720,000 + 60,000 = 780,000
Bal. c/d 63,600 Bal. b/d 842,400 ii) Motor vehicle = 20% × 600,000 = 120,000
870,000 870,000 Accumulated Depreciation 240,000 + 120,000 = 360,000

5. Determination of closing stock 6. Banks and Cash a/c

Sh ‘000’ Sh ‘000’ Sh Sh
Opening stock 384,000 Bal b/d 517,200 Motor expenses 806,400
Purchases (w8) 5,280,000 5,664,000 Agency comm. 36,000 Drawings 516,000
Less: Stock loss 480,000 Debtors 7,757,600 Trade expenses 883,200
Obsolete stock 120,000 (5,400,000) - Creditors 4,500,000
Cost of sales 4,800,000 264,000 - Bal. c/d 1,605,200
Closing stock 8,310,800 8,310,000

7. Determination of Capital
Sh ‘000’ Sh ‘000’
Assets
Building 480,000
Motor vehicle 360,000
Stock 384,000
Trade debtors 756,000
Agency commission 36,000
Prepayments 14,400
Bank and cash 517,200
2,547,600
Current liabilities
Trade creditors 504,000
Accrual 27,600 (531,600)
Capital 2,016,000

8. Creditors control a/c 9. Purchases

Sh Sh
Discount received 144,000 Bal. b/d 504,000 1% = 52,800
Bank 4,500,000 Purchases 5,280,000 , %
100% =
%
Bal c/d 1,140,000 ______
= Sh 5,280,000
5,784,000 5,784,000

QUESTION 6
Muthusi
Trading profit and loss account for period ended 31 October 2003
Sh Sh
Sales: Cash 720,000
Credit (w1) 2,080,000 2,800,000
Cost of sales (w2) (2,100,000)
Gross profit 700,000
Add: Discount received 40,000
740,000

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 REVISION PARTNER 93
Expenses
Provision for depreciation – motor vehicle 124,000
Loss on disposal (w3) 8,000
Provision for depreciation – Furniture 50,000
Provision for doubtful debts (w4) 5,000
Salaries and wages 69,000
General expenses 160,000
Discount allowed 35,000
Bad debts written off (w6) 70,000
Loan interest (w7) 20,000
Net profit 55,000 596,400
143,600

Muthusi
Balance Sheet as at 31st October 2003
Cost Acc. Dep. N. B. V
Sh Sh Sh
Non Current Assets

Freehold property 600,000 - 600,000

Motor vehicle (w8) 378,800 75,600 497,600
Furniture and fixtures (w9) 600,000 210,000 390,000
1,578,000 125,600 1,487,600
Current Assets
Stock (w10) 430,000
Debtors 600,000
Provision (30,000) 570,000 1,000,000
Total Assets 2,487,600
Liabilities and Capital
Liabilities

Creditors 300,000
Accruals (w 11) 44,000
Bank overdraft (w12) 500,000
10% loan (w13) 160,000 1,004,000
Capital 1,400,000
Net profit 143,600
Drawings (60,000)
2,487,600

Workings:
1. Debtors control a/c 2. Cost of sales a/c
Sh Sh Sh
Bal. b/d 500,000 Receipts 1,890,000 Cost + Profit = Sales (100%) 2,800,000
Credit Sales 2,080,000 Disc. allow 70,000 75% + 25% = 100%
Bad debts 20,000 Sales
_______ Bal. b/d 600,000 Cost of sales (75% × 2,800,000)
2,580,000 2,580,000 2,100,000

3. Disposal a/c 4. Provision for bad debt a/c

Sh Sh Sh Sh
Motor vehicle 128,000 Bank 120,000 Bal. b/d 25,000
- P&L 8,000 Bal c/d 30,000 P&L 5,000
128,000_ 128,000 30,000 30,000

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 REVISION PARTNER 94
5. Lighting expenses a/c 6. Bad debt a/c
Sh Sh Sh Sh
Bank 65,000 Bal b/d 15,000
Bal c/d 19,000 P & L (loss) 69,000 Debtors 20,000 P&L 20,000
84,000 84,000 20,000 20,000

7. Loan Interest a/c 8. Motor vehicle a/c

Sh Sh Sh Sh
Bank 65,000 Bal b/d 750,000 Disposal 128,000
Bal c/d 25,000 P & L (loss) 55,000 _____ Bal c/d 622,000
55,000 55,000 20,000 750,000

½ x (10% × 600,000) = 30,000 Depreciation Motor Vehicle

½ x (10% × 500,000) = 25,000 Cost – Disposal = 750,000 – 128,000 = 622,000
20% × 622,000 = Sh 124,400

9. Furniture Interest a/c Depreciation on

Furniture
Sh Sh Sh
Bal b/d 240,000 10% × 400,000 = 40,000
Bank 200,000 Bal. c/d 440,000 10% × 6/12 × 200,000 = 10,000
440,000 440,000 = 50,000

10. Determination of closing stock 11. Accruals a/c

= Opening stock + Purchases – Cost of sales Shs Shs
Opening stock 390,000 Bal b/d 44,000 Lighting 19,000
Purchases : Cash 240,000 - Loan interest 25,000
Credit 1,900,000 2,140,000 44,000 44,000
Closing stock (2,100,000)
Cost of sales 430,000

12. Bank Interest a/c 13. Loan a/c

Sh Sh Sh Sh
Sales 720,000 Bal. b/d 60,000 Bank 100,000 Bal b/d 600,000
Motor 120,000 Creditors 1,940,000 Bal c/d 500,000 ______
Vehicle 1,890,000 Purchases 240,000 600,000 600,000
Debtors 160,000 Furniture 200,000
Lighting 65,000
Salaries and wages 160,000
Interest on loan 30,000
Drawings 60,000
Loan repayments 100,000
General expenses 35,000
2,890,000 2,890,000

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REVISION PARTNER 95
14. Capital
Statement of affairs
Sh Sh Sh
Fixed assets:
Freehold property 600,000
Motor vehicle 750,000
Furniture and fixtures 240,000
1,590,000
Current Assets:
Stock 390,000
Debtors 500,000
Provision for bad debt (25,000)
865,000
Current liabilities:
Bank overdraft 60,000
Creditors 380,000
Accruals 15,000
10% loan 600,000
Net current Assets 1,055,000 (190,000)
Capital 1,400,000

QUESTION 7
Hari Sigh
Trading Profit and Loss Account
For the year ended 31 December 2004
Sh ‘000’ Sh ‘000’ Sh ‘000’
Sales (w1) 60,400
Cost of sales
Opening stock 5,000
Purchases 40,000 45,000
Closing stock (7,500) (37,500)
Gross profit 22,900
Depreciation (w2) 616
23,516
Expenses
Telephone and postage (w3) 400
Advertising (w4) 300
Depreciation 400
Salaries and wages 5,200
Rent 900
Discount allowed 1,140
General expenses 400
Petty cash expenses 960 (9,700)
13,816

Hari Sigh
Balance Sheet as at 31 December 2004
Cost Acc. Dep N.B.V
Sh ‘000’ Sh ‘000’ Sh ‘000’
Non Current Assets
Fixtures and fittings 2,000 400 1,600
Motor vehicle 2,000 360 1,640
4,000 760 3,240

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 REVISION PARTNER 96
Current Assets
Stock 7,500
Debtors (w5) 4,900
Bank 1,700
Cash 676
Prepayment 600 15,476
18,716
Capital and Current Liabilities
Current Liabilities
Creditors 3,500
Accruals 600 4,100

Capital 3,400
Drawings (2,600)
Net profit 13,816
18,716

Workings

1. Sales 2. Adjusted Depreciation

Sh ‘000’ Provision for Depreciation
Sales 60,000 Reducing balance basis: Accumulated depreciation for 3 years
Sales undercast 400 Cost – N. B. V
Total sales 600,400 Sh 2,000,000 – shs 1,024,000=Sh 976,000
Straight line method:
6% x 2,000,000 x 3 = Sh 360,000
Overcharged depreciation: Accumulated depreciation for 3
years
Sh 976,000 – Sh 360,000 =Sh 616,000

3.
Telephone and Postage a/c 4. Advertising a/c
Sh ‘000’ Sh ‘000’ Sh ‘000’ Sh ‘000’
Bank 300 P & L 400 Bank 900 P&L 300
Bal b/d 100 ____ ___ Bal b/d 600
400 400 900 400

5.
Debtor’s a/c
Sh ‘000’ Sh ‘000’
Bal b/d 5,000 Disc. Allow 100
_____ Bal c/d 4,900
5,000 5,000

QUESTION 8
a)
T. Onyancha
Trading Profit and Loss Account
For the year ended 31 December 2003
Sh Sh Sh
Sales 8,892,600
Sales returns (144,700)
Net sales 8,747,900
Cost of sales

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REVISION PARTNER 97
Opening stock 2,533,300
Purchases 4,188,400
Purchases returns (218,800) 3,969,600
Closing stock (1,760,000) (4,742,900)
Gross profit 4,005,000
Discount received 170,000
Provision for bad debts (w1) 4,790
4,179,790
Expenses
Warehouse expenses 640,000
Discount allowed 90,200
Office salaries 600,000
Office lighting 188,800
Rates: Paid 108,200
Prepaid (25,600) 82,600
Depreciation (w2) Motor Vehicle 128,000
Fixtures and Fittings 28,800
General expenses 142,400
Insurance: paid 28,000
Unexpired (4,000) 24,000
Motor vehicle expenses 150,000
Bad debts written off 28,800 (2,103,600)
Net profit 2,076,190

b)
T. Onyango
Balance Sheet as at 31 December 2003
Cost Acc. Dep N.B.V
Sh ‘000’ Sh ‘000’ Sh ‘000’
Fixed Assets
Freehold Premises 1,280,000 128,000 1,152,000
Motor Vehicles 2,600,000 - 2,600,000
Fixtures and fittings 576,000 28,800 547,200
4,456,000 156,000 4,299,200

Current Assets
Stock 1,760,000
Debtors 1,808,400
Provision for bad debts (45,210) 1,763,190
Cash at bank 1,056,400
Cash at hand 56,800
Prepayments 29,600 4,665,990
8,965,190
Liabilities
Creditors 2,169,000
Financed by:
Capital 5,920,000
Drawings (1,200,000)
Net profit 2,076,190 6,796,190
8,965,190

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REVISION PARTNER 98
1. Provision for Bad debts
2.5% x 1,808,400 = 45,210
Provision for bad debts 2. Depreciation
Sh ‘000’ Sh ‘000’ Fixtures and fittings 5%×576,000 = Sh 28,800
P&L 4,790 Bal. b/d 50,000 Motor vehicle 10% × 1,280,000 = Sh 128,000
Bal c/d 45,210 ____
50,000 50,000

3. Prepayments
Sh ‘000’
Rates 25,600
Unexpired insurance 4,000
29,600

QUESTION 9
a) Profit and loss account
Chuma Enterprises
Trading Profit and Loss Account
For the year ended 30th September 2003
Sh Sh
Gross profit 1,272,000
Add rent received 289,200
Returns inwards overstated 1,800
Discount received 55,200
Bad debts recovered 8,400
1,626,600
Expenses
Depreciation – Motor vehicle 9,600
- Office equipment 9,900
Sales overcast 9,000
Closing stock overstated 60,000
Sundry expenses 134,400
Water and lighting 9,600
Salaries and wages 484,200
Discount allowed 48,000
Rates and insurance 97,200
Bad debts written of 6,600 (868,500)
Net profit 758,100

Chuma Enterprises
Balance Sheet as at 30th September 2003
Cost Acc. Dep N.B.V
Sh Sh Sh
Non current assets
Land and building 960,000 33,600 960,000
Motor vehicle 84,000 72,000 50,400
Office Equipment 180,000 105,600 108,000

Intangible Assets
Investments 408,000 _____ 408,000
1,632,000 211,200 1,526,400
Current Assets
Debtors 318,000

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REVISION PARTNER 99
Add disc allowed 7,200
Less: Prov for bad debts (27,900) 282,900
Stock 292,800
Less: Invoiced (60,000) 232,800
Cash at bank 13,200
Cash at hand 10,200 539,100
2,065,500
Current liabilities
Creditors
546,000
Financed by:
Capital 1,182,000
Net profit 758,100
Drawings (420,600)
2,065,500

I have better understanding and

deeper insight than all my teachers,
because your testimonies are my
meditation.

Psalms 119

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REVISION PARTNER 100
TOPIC 6
FINANCIAL STATEMENTS OF A PARTNERSHIP
QUESTION 1
(a) Suspense account
Suspense account
Sh. Sh.
Discounts allowed 633,600 Balance brought forward 7,831,200
Discounts received 633,600
Sales account 4,800,000
Disposal account 1, 440,000
Accounts receivable 324,000 -
7,831,200 7,831,200

(b) Statement of adjustments to show the correct

Slywill Enterprises
Adjusted net profit account for the year ended 31 October 2013

Sh Sh
Credits
Discount received 633,600
Discount allowed 633,600
Sales 4,800,600
Purchase returns 2,956,800
Decrease in allowance for doubtful debts 78,720
Drawings 940,800
Gain on disposal 384,000
10,427,520
Debits
Electricity 268,800
Bad debts 748,800 (1,017,600)
Adjusted net profit 9,409,920
Share of profit: Sylvia 5,645,952
William 3,763,968 9,409,920

(c) Statement of adjustments to show the correct

Current accounts
Sylvia William Sylvia William
Sh. Sh. Sh. Sh.
Balance b/d - 1,948,800 Balance b/d 3,264,000 -
Drawings 940,800 - Salary - 1,440,000
Salary (William) 1,440,000 - Profit share 5,645,952 3,763,968
Balance carried - -
forward 6,529,152 3,255,168 - -
8,909,952 5,203,968 8,909,952 5,203,968

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REVISION PARTNER 101
(d) Statement of financial position

Slywill Enterprises
Statement of financial position as at 31 October 2013
Sh. Sh. Sh.
Non-current assets
Premises (net book value) 28,800,000
Equipment (net book value) 12,480,000
Vehicle (net book value) 8,976,000
50,256,000
Current assets
Inventory 21,460,800
Accounts receivable 10,348,800
Less: allowance for doubtful debts 1,034,880 9,313,920
Payments 686,400
Cash and bank balance 5,232,000 36,693,120
Total assets 86,949,120

Capital and liabilities

Capital accounts: Sylvia 33,600,000
William 33,600,000 67,200,000
Current accounts: Sylvia 6,529,152
William 3,255,168 9,784,320
Current liabilities
Accounts payable 9,081,600
Accruals 883,200 9,964,800
86,949,120

Workings
W1
Depreciable asset cost = Purchase cost – Salvage value

Sh.3, 360,000 – Sh480, 000 = 2,880,000

Depreciation per year = Sh.2, 880,000 × 0.2 = Sh.576000

Accumulated depreciation = Sh.576, 000× 4 = Sh.2, 304,000

Book value on disposal = purchase cost - depreciation

3,360,000- 2,304,000= 1,056,000

Gain on disposal

Sh.
Disposal price 1,440,000
Book value of asset 1,056,000
384,000

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REVISION PARTNER 102
W2
Accounts receivable
Sh. Sh.
Balance brought forward 11,421,600 Suspense 324,000
- Bad debts 748,800
- Balance c/d 10,348,800
11,421,600 11,421,600

W3
Accounts payable account
Sh. Sh.
Purchase returns 2,956,800 Balance b/d 12,038,400
Balance c/d 9,081,600 -
12,038,400 12,038,400

W4
Allowance for doubtful debts
Sh. Sh.
Income statement 78,720 Balance b/d 1,113,600
Balance c/d 1,034,880 -
1,113,600 1,113,600

W5
Motor vehicle account
Sh. Sh.
Balance b/d 10,032,000 Disposal account 1,056,000
- Balance c/d 8,976,000
10,032,000 10,032,000

November 2013 Question Four

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 103

QUESTION 2
a) Partners’ capital account
Kanini Lucy Ndwiga and Gitonga
Capital account for the year ended 31 December 2012
Kanini Lucy Ndwiga Gitonga Kanini Lucy Ndwiga Gitonga
Shs Shs Shs Shs Shs Shs Shs Shs
Goodwill 360,000 240,000 - 240,000 Balance b/d 1,700,000 1,300,000 700,000 -
Car - - 78,000 - Cash - - - 1,712,000
Loan - - 400,000 - Revaluation 198,000 132,000 66,000 -
Cash - - 521,560 - Goodwill 420,000 280,000 140,000 -
Drawings 486,000 - - - Current A/c - - 93,560 -
Bal c/d 1,472,000 1,472,000 - 1,472,000 ______ ______ _____ _____
2,318,000 1,712,000 999,560 1,712,000 2,318,000 1,712,000 999,560 1,712,000

b) Partners current account

Kanini Lucy Ndwiga and Gitonga
Current account for the year ended 31 December 2012
Kanini Lucy Ndwiga Gitonga Kanini Lucy Ndwiga Gitonga
Shs Shs Shs Shs Shs Shs Shs Shs
Balance b/d - 50,180 - - Balance b/d 74,280 - 93,560 -
Capital a/c - - 93,560 - Cash - - - 50,180
Drawings 24,100 - - - Balance c/d - 50,180 - -
Balance c/d 50,180 - - 50,180

74,280 50,180 93,560 50,180 74,280 50,180 93,560 50,180

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REVISION PARTNER 104
c) Statement of financial position
Kanini Lucy and Gitonga
Statement of financial position as at 31 December 2012
Non Current assets Cost Acc. Dep. NBV
Shs Shs Shs
Premises 2,400,000 - 2,400,000
Plant 700,000 - 700,000
Vehicle 222,000 - 222,000
Equipment 40,000 - 40,000
3,362,000
Current Assets
Inventory (W5) 1,083,580
Account receivables 639,600
Bank (W6) 646,520
Cash 15,200 2,444,900
5,806,900
Equity and liabilities
Capital A/c
Kanini 1,472,000
Lucy 1,472,000
Gitonga 1,472,000
Current a/c
Kanini 50,180
Lucy (50,180)
Gitonga 50,180
4,466,180
Long term Liabilities
Loan from Ndwiga 960,000
Current Liabilities
Account payables 380,720
5,806,900

Workings
W1

Goodwill a/c
Sh. Sh.
Capital a/c Capital account
Kanini 3/6×840,000 420,000 Kanini 3/7 ×840,000 360,000
Lucy 2/6 × 840,000 280,000 Lucy 2/7 × 840,000 240,000
Ndwiga 1/6 × 840,000 140,000 Gitonga 2/7 ×840,000 240,000
840,000 840,000
W2

Revaluation a/c
Sh. Sh.
Plant 40,000
Inventory 164,000 Premises 600,000
Capital A/c
Kanini 3/6 ×396,000 198,000
Lucy: 2/6 × 396,000 132,000
Ndwiga 1/6×396000 66,000 ________
600,000 600,000

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REVISION PARTNER 105
W3
Premises A/c
Sh. Sh.
Balance b/d 1,800,000 Balance c/d 2,400,000
Revaluation 600,000 -
2,400,000 2,400,000

W4
Plant A/c
Sh. Sh.
Balance b/d 740,000 Revaluation 40,000
- Balance c/d 700,000
740,000 740,000
W5
Inventory
Sh. Sh.
Balance b/d 1,247,580 Revaluation 164,000
- Balance c/d 1,083,580
1,247,580 1,247,580

W6
Bank a/c
Sh. Sh.
Capital 1,712,000 Balance b/d 84,000
Current 50,180 Drawings
- Capital 486,000
- Current 24,100
- Capital 521,560
- Balance c/d 646,520
1,762,180 1,762,180

May 2013 Question Three

QUESTION 3
a) Income statement
Partners
Income statement for the year ended 31st march, 2012
30th September 2011 31st March 2012 Total
Sh. ‘000’ Sh. ‘000’ Sh. ‘000’
Sales 32,000 48,000 80,000
Less cost of sales
Inventory 9,600 14,480 9,600
Purchases 21,600 21,600 43,200
Goods available for sale 31,200 36,080 52,800
Less closing inventory (14,480) (16,720) (11,000) (25,080) (11,000) (41,800)
Gross profit 15,280 22,920 38,200
Less expenses
Rent 420 420 840
Salaries 4,830 4,830 9,660
Selling & distribution 2,096 3,144 5,240
Depreciation on:
Motor vehicles 1,640 1,640 3,280
Furniture and fittings 290 290 580
Prov. for doubtful debts 229 (9,505) 309 (10,633) 538 (20,138)
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REVISION PARTNER 106

Net profit 5,775 12,287 18,062

Interest on capital:
John 325 325 650
Joel 280 280 560
Joy - (605) 300 (905) 300 (1,510)
Profit to be shared 5,170 11,382 16,552
Share of profit
John 3,447 4,553 8,000
Joel 1,723 4,553 6,276
Joy - (5,170) 2,276 (11,382) 2,276 (16,552)
NIL NIL NIL

W1
Apportionment of sales 100: 150 = 2 :3
To 30th September 2011 2/5 × 80,000,000 = 32,000,000
To 31st March 2012 3/5 × 80,000,000 = 48,000,000

W2
Interest on capital

To 30th September 2011 John: 10%×6,500,000× ½ = 325,000

Joel: 10% ×5,600,000× ½ = 280,000
Joy: = -
To 31st March 2012 John: 10% × 6,500,000× ½ = 325,000
Joel: 10% × 5,600,000× ½ = 280,000
Joy: 10% ×6,000,000×½ = 300,000
W3
Goodwill Account
Shs ‘000’ Shs ‘000’
Current Account: Current account:
John: 2/3 x 10500 7000 John: 2/5 x 10500 4200
Joel: 1/3 x 10500 3500 Joel: 2/5 x 10500 4200
_____ Joy 1/5 x 10500 2100
10,500 10,500
W4

Salaries expense for the business 14,960,000-5,300,000=9,660,000

b) Statement of financial position

John, Joel and Joy
Statement of financial position as at 31st march 2012
Non –current assets Cost Depreciation NBV
Sh. ‘000’ Sh. ‘000’ Sh. ‘000’
Leasehold premises 15,000 - 15,000
Motor vehicle 16,400 7,060 9,340
Furniture and fittings 5,800 1,550 4,250
37,200 8,610 28,590
Current assets
Inventory 11,000
Trade receivables 6,440
Provision for doubtful debts (538) 5,902
Bank balance 2,460 19,362
Total assets 47,952

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 REVISION PARTNER 107
Equity and liabilities
Capital Account
John 6,500
Joel 5,600
Joy 6,000
Current Account
John 12,310
Joel 6,296
Joy 2,796
Owner’s Equity 39,502
Current liabilities
Trade payables 8,450
Total Equity and Liabilities 47,952

c) Partners current accounts

Partners’ current accounts

For the year ended 31st march 2012
John Joel Joy John Joel Joy
Shs‘000’ Shs‘000’ Shs‘000’ Shs‘000’ Shs‘000’ Shs‘000’
Drawings 2,580 2,040 680 Balance b/d 3,440 2,200 -
Goodwill 4,200 4,200 2,100 Cash - - 3,000
Bal. c/d 12,310 6,296 2,796 Goodwill 7,000 3,500 -
Int. on capital 650 560 300
_____ _____ ____ Share of profit 8,000 6,196 2,796
19,090 12,536 5,576 19,090 12,536 5,576
Balance b/d 12,810 6296 2,796

May 2012 Question Three

QUESTION 4
(a)
Yina and Yangi
Statement of cash flows
For the year ended 30 September 2011
Sh. ‘000’ Sh. ‘000’
Cash flows from operating activities
Net profit before tax 5,320
Adjustments
Depreciation (w3) 3,500
Gain on disposal (w4) (840)

Changes in working capital

Inventory(w1) (560)
Trade receivable(w1) (560)
Trade payables (w1) 700
Other payable (w1) (280) 1,960
Cash from operating activities 7,280

Investing activities
Purchase of assets(w1) (7,280)
Purchase of intangible assets (420)
Proceeds from disposal 2,520
Cash from investing activities (5,180)

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REVISION PARTNER 108
Financing activities
Drawings (1,820)
Cash and cash equivalents for the year 280
Cash and cash equivalents b /d 1,400
Cash and cash equivalents c/d 1,680

Workings
W1
Changes in Working Capital

Asset Sh ‘000” Sh ‘000”

Increase in inventory (1,960 – 1,400) (560)
increase in trade receivable (2,660 – 2,100) (560)
Increase in trade payables (3,500 -2,800) 700
Decrease in other payable (1,680 – 1,400) (280)
W2
Non-current Assets a/c
Shs ‘000’ Shs ‘000’
Balance b/d 8,400 Disposal 4,480
Acquisitions 7,280 Balance c/d 11,200
15,680 15,680

W3
Accumulated depreciation a/c
Shs ‘000’ Shs ‘000’
Disposal 2,800 Balance b /d 2,800
Balance c/d 3,500 Charge for the year 3,500
6,300 6,300
W4
Disposal a/c
Shs ‘000’ Shs ‘000’
Cost 4,480 Acc. Depreciation 2,800
Income statement 840 Cash 2,520
5,320 5,320

W5
Cash and cash equivalents b /d = bank balance less bank overdraft
= 1,960,000 – 560,000
= shs.1,400,000
Cash and cash equivalents c/d = 2,800,000 – 1,120,000
= shs.1,680,000
b) Explain with examples
i) Economic entity
It’s one of the assumptions made in the generally accepted accounting principles. Any
organization or unit in the society can be an economic entity. The assumption states that the
activities of the entity are to be kept separate from the activities of its owner and all other
economic entities i.e. the business is accounted for separately from other business entities,
including its owner.
ii) Full disclosure
This is an accounting guideline which requires that any information relating to an investing
or lending decision to be included in the notes of financial statements or in other financial
reports. If certain information is important to an investor or lender using the financial
statements, that information should be disclosed within the statement or in the notes to the

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP

REVISION PARTNER 109
statement e.g. if a company is named in a law suit that demands a significant amount of
money, this should be described in the notes to the financial statements since it may not be
clear whether the company will be able to defend itself or it will lose the law suit.
December 2011 Question Three A& B

QUESTION 5
a)
Meja and kariuki
Adjusted income statement and appropriation account
For the years ended 31st March 2010 and 2011.
Sh Sh.
Net profits (w1) 937,500
Less – Bad debts written off 16,000
Inventories written off (w2) 15,700
Allowance for doubtful debts (w3) 21,250 (52,950)
Adjusted net profit 884,550
Less – interest on capital (w4)
Meja 75,000
Kariuki 50,000 (125,000)
Salary – Kariuku (w5) (180,000)
Profit to be shared 579,550
Share of profit – Meja (289,775)
Kariuki (289,775)
-

b)
Partners Current Account
Meja Kariuki Meja Kariuki
Sh. Sh. Sh. Sh.
Adjustment of profit for Balance b/d 172,500 114,950
2010 – 2011 Interest on capital 75,000 50,000
(old ratio) 562,500 375,000 Salary - 180,000
Share of profit 289,775 289,775
Balance c/d - 259,725 Balance c/d 25,225 -
562,500 634,725 562,500 634,725

c)
Partners’ Capital Accounts
Meja Kariuki Meja Kariuki
Sh. Sh. Sh. Sh.
Goodwill written 100,000 100,000 Balance b/d 750,000 500,000
Goodwill 200,000 -
Balance c/d 860,000 _______ R evaluation gain 10,000 10,000
960,000 510,000 960,000 510,000

d)
Meja and Kariuki statement of financial position
As at 31st march 2011
Sh. Sh.
Non-current assets
Motor vehicles 600,000
Fixture and fittings 262,500
Office equipment 225,000
1,087,500
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REVISION PARTNER 110

Current assets
Inventories 275,000
Accounts receivable 403,750
Cash and equivalents 55,2000
Prepaid insurance 24,000 759,950
1,845,450
Capital: Meja 860,000
Kariuki 410,000
Current account: Meja (25,225)
Kariuki 259,775
234,500
Current liabilities
Accounts payable 319,350
Accruals 21,600 340,950
1,845,450

Revaluation account
Meja Kariuki
Sh. Sh
Motor vehicles 36,000 Office equipment 65,000
Fixtures and fittings 9,000
Capital accounts: Meja 10,000
Kariuki 10,000 -
65,000 65,000

Workings

W1 Net profits (525,000 + 412,500) =937,500

W2 Inventories written off (290,700 – 275,000) = 15,700

W3 Allowance for doubtful debts (5% x 425,000) =21,250

W4 Interest on Capital
Meja (5% x 750,000x 2) = 75,000
Kariuki (5% x 500,000 x 2) =50,000

W5 Salary – Kariuku (90,000 x 2) =180,000

May 2011 Question Two

QUESTION 6
Grace, Beatrice and Catherine Income Statement
For the year ended 30th September 2006
Sh ‘000’ Sh ‘000’ Sh ‘000’
Sales 35,000
Cost of sales:
Opening stock 4,800
Purchases 16,600
Closing stock (5,100) (16,300)
Total gross profit 18,700

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REVISION PARTNER 111

6 months to 30 March 2006 6 months to 30 Sept 2006

Sh ‘000’ Sh ‘000’ Sh ‘000’ Sh ‘000’
Gross Profit 7,480 11,220
Expenses
Salaries (w1) 1,935 1,935
Shop wages 1,100 1,100
Prov. Bad Debts 124 124
General Expenses (w2) 1,410 1,410
Amortisation (w3) 124 124
Depreciation (w4): Motor Vehicle 340 340
: Shop Fittings 30 30
Rent, rent and electricity (w5) 820 820
Professional Charges (w4) 110 (5,989) 110 (5,609)
Net profit 1,491 5,611

Share of profit
Grace 994 2,244.4
Beatrice 497 2,244.4
Catherine - 1,491 1,122.2 5,611
_-___ _-___

Grace Beatrice and Catherine

Statement of financial position as at 30 September 2006
Cost Acc. Dep. N.B.V
Sh ‘000’ Sh ‘000’ Sh ‘000’
Non- Current Assets
Leasehold Premises (w5) 6,200 248 5,952
Motor vehicle 3,400 1,880 1,520
Shop fitting 1,200 460 740
10,800 2,588 8,212
Current Assets
Accounts receivable (w6) 900
Provision for bad debts (160) 740
Stock 5,100
Prepayment 260
Bank 9,280 15,380
23,512
Capital and Liabilities
Liabilities
Account payable 4,280
Accruals 60 4,340

Capital account (w7): Grace 2,000

Beatrice 2,000
Catherine (1,500) 6,500

Current account: Grace 7,438.4

Beatrice 3,261.4
Catherine 1,972.4 12,672
23,512

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 REVISION PARTNER 112
Partner’s Current Accounts
Grace Beatrice Catherine Grace Beatrice Catherine
Sh'000' Sh'000' Sh'000' Sh'000' Sh'000' Sh'000'
Goodwill 4,800 4,800 2,400 Bal b/d 1,600 1,200 3,500
Drawings 600 480 20 Goodwill 8,000 4,000 -
Bal. c/d 7,438.4 3,261.4 1,972.20 Rent. - 600 -
_____ _____ _____ S. of Profit 3,238.4 2,741.4 1,122.2
12,838.4 8,542.4 4,622.2 12.838.4 8,541.4 4,622.2

Workings
1. Salaries a/c 2. General
expenses a/c
Sh'000' Sh'000' Sh'000' Sh'000'
Bank 51,200 P & L 3,870 Bank 2,640 P&L 2,520
____ Drawings 1,330 ____ Suspense 120
5.200 5,200 2,640 2,640

3. Amortisation 4. Depreciation
, , , Motor vehicle: 20% × 3,400 = Sh 680
P.a =
Shop fittings: 5% ×1,200 = Sh 60
= Sh 248,000
Leasehold premises: 6200/25 = Sh 248

5. Rent, Rates and Elec. a/c 6. Suspense a/c

Sh'000' Sh'000' Sh'000' Sh'000'
Bank 11,240 P & L 1,640 Gen. Expenses 120 Purchases 200
Bal c/d 660 Bal. c/d 260 Sales Returns 80 -
1,900 1,900 200 200

Partner’s Capital Accounts

Grace Beatrice Catherine Grace Beatrice Catherine
Sh'000' Sh'000' Sh'000' Sh'000' Sh'000' Sh'000'
Goodwill 4,800 4,800 2,400 Bal b/d 3,000 2,000 1,500
Goodwill 8,000 4,000 -
Bal. c/d 6,200 1,200 _____ Bal c/d ____ ____ 900
11,000 6,000 2,400 11,000 6,000 2,400

8. Professional a/c 9. Goodwill a/c

Sh'000' Sh'000' Sh'000' Sh'000'
Bank 240 L. premises 200 Capital account Current a/c
___ P & L 220 Grace 8,000 Grace 4,800
420 420 Beatrice 4,000 Beatrice 4,800
____ Catherine 4,800
12,000 12,000

QUESTION 7
a) Why goodwill should be paid
i) Goodwill unless purchased is not maintained in the books. In partnership this implies
that the partners’ capitals are understated to the extent of their respective portion of
goodwill. Therefore on admission, goodwill should be recognised and shared
between the old partners in their old profit/loss-sharing ratio.
CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP
REVISION PARTNER 113
ii) When a partner is retiring goodwill should be recognised. The partnership is
dissolved and it is the requirement of the partnerships Act to recognise goodwill.
Goodwill is recognised and a share of the retiring partner is credited to his account
b)
Akili, Busara and Chema
Trading, Profit and Loss and Appropriation a/c
For the year ended 30 April 2006
Sh ‘000’ Sh ‘000’ Sh ‘000’
Sales 20,000
Credit sales (600) 19,400
Cost of sales
Opening inventory 3,000
Purchases 10,300
Closing Inventory 2,400
Customer 200 (2,600) (10,700)
Gross Profit 8,700

May 2005-30 Oct 2005 1 Nov 2005-30 April 2006

Sh ‘000’ Sh ‘000’ Sh ‘000’ Sh ‘000’
Gross profit 4,350 4,350
Operating expenses (3,200) (3,200)
1,150 1,150
Interest on loan: Busara 50 50
Chema 100 (150) 100 (150)
1,000 1,000

Salary: Busara 120 60

Chema - 60
Interest capital A 62.5 77.5
B 50 71
C 25 49
Salary of profit A 247.5 341.25
B 247.5 204.75
C 247.5 1,000 136.5 1,000

Partner’s Capital Accounts

Akili Busara Chema Akili Busara Chema
Sh'000’ Sh'000' Sh'000' Sh'000’ Sh'000' Sh'000'
Goodwill 600 360 240 Goodwill 2,500 2,000 1,000
Bal. c/d 3,100 2,840 1,960 Bal. c/d 400 400 400
____ _____ ____ Revaluation 800 800 800
3,700 3,200 2,200 3,700 3200 2,200

Partner’s Current Accounts

Akili Busara Chema Akili Busara Chema
Sh'000’ Sh'000' Sh'000' Sh'000’ Sh'000' Sh'000'
Drawings 300 400 200 Bal. c/d 200 300 200
Salary - 180 60
Int. on cap. 140 121 74
Bal. c/d 628.75 753.25 718 S. of profit 588.75 452.25 384
- - - Int. on loan -__ 100 200
928.75 1,153.25 918 978.75 1,153.25 918
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REVISION PARTNER 114
Akili, Basara and Chema
Balance sheet as at 30 April 2006
Cost Acc. Dep. N.B.V
Sh ‘000’ Sh ‘000’ Sh ‘000’
Non-Current Assets
Land 2,000 - 2,000
Building 6,400 - 6,400
Plant and machinery 7,000 4,000 3,000
l5,400 4,000 11,400

Current Assets
Inventory 2,600
Accounts Received 3,400 6,000
17,400
Capital and Liabilities

Liabilities
Cash at bank 1,100
Accounts Payable 3,300
Loan: Busara 1,000
Chema 2,000
3,000
Current accounts: A 628.75
B 753.25
C 718 2,100
Capital accounts: A 3,100
B 2,840
C 1,960 7,900
17,400

Workings

1. Professional a/c 2. Goodwill a/c

Sh'000' Sh'000' Sh'000' Sh'000'
Capital: A 400 Capital: A 600 Bal b/d 1,000
B 400 B 360 Revaluation 1,000 Bal c/d 2,000
C 400 C 240 2,000 2,000
1,200 1,200

3. Building a/c 4. Revaluation a/c

Sh'000' Sh'000' Sh'000' Sh'000'
Bal b/d 5,000 Current: A 1,200 Land 1,000
Revaluation 1,400 Bal c/d 6,400 B 720 Buildings 1,400
6,400 6,400 C 480 ____
2,400 2,400

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REVISION PARTNER 115

TOPIC 7
FINANCIAL STATEMENTS OF A COMPANY
QUESTION 1
(b)
i) Income statement
Apex LTD
Income Statement for the year 30 September 2014
Sh. ‘000’ Sh. ‘000’
Sales 249,760
Returns inwards (12,900)
Cost of sales 236,860
Opening stock 74,000
Add purchases 134,630
Returns outwards (4,875)
Closing inventory (12,875) (78,880)
Gross profit 157,980
Add: Discount received 1,850
159,830
Expenses
Discount allowed 3,200
Administrative expenses 10,650
Selling and distributions costs 4,200
Loss on motor vehicle disposal 1,000
Depreciation: Buildings 2,000
Plant & Equipment 24,000
Motor Vehicles 2,300
Tax expense 15,000 (62,350)
97,480
Retained profits b/d 69,695
Retained profits c/d 167,175

ii) Statement of financial position

Apex LTD
Statement of Financial Position as at 30 September 2014
Sh. ‘000’ Sh. ‘000’ Sh. ‘000’
Non-Current assets
Free hold land 60,000 - 60,000
Buildings 50,000 22,000 28,000
Plant and equipment 120,000 98,000 22,000
Motor vehicles 18,000 11,100 6,900
248,000 131,100 116,900
Current assets
Cash and bank 3,500
Trade receivables 122,500
Inventory 124,875
Administrative expense prepaid 12,000
Distribution cost prepaid 8,000 270,875
387,775
Capital and liabilities
Ordinary share capital 100,000
Retained profits 167,175
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REVISION PARTNER 116

Current liabilities
Trade payables 99,800
Accrued administrative expense 500
Accrued distribution cost 5,300
Tax 15,000 120,600
387,775

Workings
W1
Administrative expense account
Sh. ‘000’ Sh. ‘000’
Cash 22,150 Income statement 10,650
Balance c/d 500 Balance c/d 12,000
22,650 22,650

W2
Selling and distribution expense account
Sh. ‘000’ Sh. ‘000’
Cash 6,900 Income statement 4,200
Balance c/d 5,300 Balance c/d 8,000
12,200 12,200

W3
Motor vehicle account
Sh. ‘000’ Sh. ‘000’
Balance b/d 32,000 Disposal 14,000
- Balance c/d 18,000
32,000 32,000

W4
Motor vehicle disposal account
Sh. ‘000’ Sh. ‘000’
Motor vehicle 14,000 Cash 5,000
Provision for depreciation 8,000
____ Loss on disposal 1,000
14,000 14,000
W5
Depreciation (Sh. ‘000’)
Buildings ⟹ 4% ×50,000 = 2,000
Plants and equipment ⟹ 20% × 120,000 = 24,000
Motor vehicle ⟹ (18,000 – 8,800) × 25% = 2,300

November 2014 Question Four B

QUESTION 2
a) Income statement for the year ended 31 December 2013

Upendo Ltd
Income statement for the year ended 31st December 2013
Sh. ‘000’ Sh. ‘000’
Gross profit for the year 81,508
Less: Expenses
Bad debts 340
Salaries and wages 28,200
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REVISION PARTNER 117
Auditors fees 1,200
Insurance and rates (W2) 1,260
Telephone expenses 620
Electricity expenses (W1) 1,764
Debenture interest (800 + 800) 1,600
Directors fees (W3) 7,500
General expense 3,108
Depreciation (W4) 5,820
Motor vehicle 6,696 (58,108)
Office equipment 23,400

b) Statement of financial position as at 31 December 2013

Upendo Ltd
Statement of financial position for the
Year ended 31st December 2013
Cost Acc. Dep. N.B.V
Sh. ‘000’ Sh. ‘000’ Sh. ‘000’
Fixed Assets
Land 100,000 - 100,000
Buildings 32,200 - 32,200
Motor vehicle 29,100 28,120 980
Office equipment 44,640 23,896 20,744
205,940 52,016 153,924
Current Assets
Inventory 83,852
Trade receivables 27,200
Bank balance 7,796
Prepaid insurance rates 150 118,998
272,922
Total Assets
Equity and Liabilities
Ordinary shares 120,000
Preference shares 40,000
General reserve 40,000
Revenue reserve(W5) 31,252
231,252
Long-term liabilities
10% debentures 10,000
Current liabilities
Trade payables 13,722
Accrued electricity 548
Debentures interest 800
Ordinary share dividend 1,200
Preference share dividend 3,200
Directors fees 5,000
Audit fees 1,200 25,670
Total equity and liabilities 272,922

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Workings
W1
Electricity expenses a/c
Sh ‘000’ Sh ‘000’
Bank 1,216 Income statement 1,764
Balance c/d 548 _____
1,764 1,764

W2
Insurance and Rates a/c
Sh ‘000’ Sh ‘000’
Bank 1,410 Income statement 1,260
____ Balance c/d 150
1,410 1,410

W3
Director’s fees a/c
Sh ‘000’ Sh ‘000’
Bank 5,000 Income statement 7,500
Balance c/d 2,500 _____
7,500 7,500

W4 Depreciation provided on cost

Office equipment
Depreciation charge 15% × 44,640 = 6,696
Accumulated depreciation 17,200 + 6,696 = 23,896
Motor vehicles
Depreciation charge 20%×29,100 = 5,820
Accumulated depreciation 22,300 + 5,820 = 28,120

W5
Schedule of movement of Equity for the year ended 31st 2009
Ordinary Preference Proposed General Revenue
shares shares dividend reserve reserve
Sh. ‘000’ Sh. ‘000’ Sh. ‘000’ Sh. ‘000’ Sh. ‘000’
Balance b/d 12,0000 40,000 - 28,000 24,252
Transfer to general reserve - - - 12,000 (12,000)
Preference share dividend - - 3,200 - (3,200)
Ordinary share dividend - - 1,200 - (1,200)
Net profit ______ _____ ____ _____ 23,400
Balance c/d 120,000 40,000 4,400 40,000 31,252

May 2014 Question Two

QUESTION 3
(a) Explain the following terms
(i) Cumulative preference shares
This means that if an entity is unable to pay dividend in a certain year because of inadequate
profit, the dividend on cumulative preference shares can be paid in subsequent years. Arrears
of preference dividend should be paid in priority of ordinary dividend.
(ii) Initial public offer
This is whereby shares are issued to the members of the public for the first time. The
government may decide to offload some of its shareholding in a parastatal or private
company to the public. A private company may also sell its 'shares to the public.

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(iii) Mortgaged debentures
These are debentures that are secured by a specific asset or a floating charge on all or some
assets of the entity. In case the entity is liquidated, the assets that are pledged are sold and the
proceeds are used to pay the debenture holders.
November 2013 Question Five A

QUESTION 4
(b)
(i) Income statement
Sunny Side Ltd
Income statement for the year ended 30th June 2013
Sh.000 Sh.000
Sales 108,000
Less: cost of sales (59,400)
Gross profit 48,600
Less: Operating expenses 31,320
Interest 4,320 (35,640)
Earnings before tax 12,960
Less: tax at 30% (3,888)
Net profit 9,072

(ii) Statement of financial position

Sunny Side Ltd
Statement of financial position as at 30 June 2013
Sh.000 Sh.000
Non-current assets 60,000
Current assets:
Inventory 13,500
Accounts receivable 20,160
Cash and bank balance 2,500 36,160
96,160
Capital and liabilities:
Ordinary share capital 52,000
18% debentures 24,000
Retained earnings 9,072 85,072
Current liabilities:
Accounts payable 7,200
Tax payable 3,888 11,088
96,910

Workings
W1
Non-current assets turnover =
1.8 =
,

X = sales =sh.108,000

W2
Gross profit margin =
x = 45%
108,000

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108,000×45% = 48,600

Gross profit = sh.48,600

W3
Cost of sales = sales - gross profit

108,000 - 48,600

Cost of sales = sh.59, 400

W4

Stock turnover =

,
= 4.4

59,400
4.4

Average inventory = sh. 13,500

W5
Average debt collection period.

× 360= 84

Credit sales = 80% × 108,000 = 86,400

× ,
× 360 =
,

Average debtors = sh.20,160

W6

Interest cover =

Earnings before interest and tax (EBIT)

= Sales - cost of sales - operating costs

= 108,000 - 59,400 - 31,320

EBIT = sh.17, 280

,
Interest cover = =4

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,
Interest charge = x = = sh.4,320
W7
.
,
Debt capital = =
%

Debt capital = sh.24, 000

W8

Average credit repayment period

×360= 90

×360 = sh.90
,

,
×90

Average creditors = sh.7,200

November 2013 Question Three B

QUESTION 5
b) Distinguish between;
i. Provision and reserve
Provisions are amounts set aside out of profits for a specific purpose and are made in
view of some expected events e.g. provision for depreciation while reserves are
amounts set aside out of profits to retain assets in the business. These amounts are
ploughed back in the business e.g. revenue reserve.

November 2012 Question Five B (II)

QUESTION 6
a) Suspense account duly balanced for the year ended 31 July 2012

Suspense account
Shs ‘000’ Shs ‘000’
Ordinary share capital 700 Balance as per Trial balance 1,680
Share Premium 420
Disposal 560 -
1,680 1,680

Workings
W1
Ordinary share capital account
Shs ‘000’ Shs ‘000’
Balance c/ d 2,100 Balance b/d 1,400
- Suspense 700
2,100 2,100

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W2
Share Premium account
Shs ‘000’ Shs ‘000’
Balance b/d 420 Suspense 420
420 420

b) Income statement for the year ended 31 July 2012

Beta limited
Income Statement for the year Ended 31 July 2012
Shs ‘000’ Shs ‘000’ Shs ‘000’
Sales 13,860
Less: returns inwards (420)
Net sales 13,440
Less Cost of goods sold
Opening stock 2,100
Add: Purchases 8,540
Less: Returns out (560) 7,980
Closing stock (2,520)
Cost of goods sold (7,560)
Gross profit 5,880
Add other incomes
Disposal gain (w2) 560
Decrease in provision for bad debts (w5) 7
Total Income 6,447
Less: Expenses
Bad debts written off 140
General Administration expenses (w6) 770
Operating expenses 1,260
Depreciation
Buildings (w4) 112
Plant (w3) 560
Selling expenses 980
Total operating expenses (3,822)
Operating profit 2,625
Less Finance cost
Debentures interest (w8) (420)
Net profit before tax 2,205
Less corporation tax (630)
Net profit after tax 1,575
Less: Transfer to General 140
Less: Dividends proposed 210 (350)
Retained earnings for the year 1,225
Add: Retained profit b/d 2,660
Retained profit c/d 3,855

c) Statement of financial position as at 31 July 2012

Beta limited
Statement of Financial Position as at 31 July 2012
Cost Acc. Dep. NBV
Non-current assets Shs ‘000’ Shs ‘000’ Shs ‘000’
Buildings 5,600 392 5,208
Plant 5,600 1,960 3,640
11,200 2,352 8,848

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Current assets
Stock 2,520
Accounts receivable (w7) 2,527
Prepaid rates 210 5,257
14,105
Financed by:
Issued share capital 105,000 ord. shares at 20 2,100
Reserves
Share premium 420
Retained profits 3,885
General reserves 140 4,445
Shareholders fund 6,545
Non-current liabilities
10% Debentures 4,200
Current liabilities
Accounts payable 980
Bank overdraft 1,120
Debenture interest 420
Proposed dividends 210
Corporation tax 630 3,360
14,105

Workings
W1
Plant account
Shs ‘000’ Shs ‘000’
Balance b/d 7,000 Disposal 1,400
- Balance c/d 5,600
7,000 7,000

W2
Disposal account
Shs ‘000’ Shs ‘000’
Plant cost 1,400 Proceeds 560
Disposal gain 560 Accumulated depreciation 1,400
1,960 1,960

W3
Provision for depreciation account (plant)
Shs ‘000’ Shs ‘000’
Disposal account 1,400 Balance b/d 2,800
Balance c/d 1,960 Income statement 560
2,360 2,360

W4 Depreciation
Buildings- 2%×5,600,000= Shs. 112,000
Plant -10% × (7,000,000-1,400,000) = Shs. 560,000

W5
Bad Debts account
Shs ‘000’ Shs ‘000’
Income statement 7 Balance b/d 140
Balance c/d 133 -
140 140

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W6
Administration expenses account
Shs ‘000’ Shs ‘000’
Balance b/d 980 Income statement 770
- Balance c/d 210
980 980
W7
Accounts receivable account
Shs ‘000’ Shs ‘000’
Balance b/d 2660 Provision for bad debts 133
- Balance c/d 2,527
2,660 2,660
W8
Debenture interest
10% × 4,200,000= shs. 420,000
November 2012 Question One

QUESTION 7
a) Income statement
Usaidizi limited
Income statement for the year ended 31st December 2011
Sh. ‘000’ Sh. ‘000’ Sh. ‘000’
Sales 1,560,000
Less cost of sales
Opening inventory 60,000
Purchases 800,000
Less return outwards (20,000) 780,000
Carriage inwards 12,600
Goods available for use 852,600
Less closing inventory (44,000) (808,600)
Gross profit 751,400
Income from investment 4,000
755,400
Less expenses
Insurance (w1) 7,000
Salaries wages (w2) 120,000
Audit fees (w3) 10,000
Interest on debentures 5,000
Directors emoluments (w4) 84,000
Bad debts 300
Miscellaneous expenses 18,000
Depreciation on; Plant and 180,000
machinery(w5) 21,000
Motor 5,000
vehicles(w5) 8,000 (458,300)

Off.equipment(w5)
Furniture and
fittings(w5)
Net profit 297,100

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b) Statement of financial position
Usaidizi limited
Statement of financial positions as at 31st December 2012
Non-current assets Cost Dep. NBV
Sh. ‘000’ Sh. ‘000’ Sh. ‘000’
Investments 80,000 - 80,000
Land and buildings 220,000 - 220,000
Plant and machinery 1800,000 330,000 1,470,000
Motor vehicle 200,000 81,000 119,000
Office equipment 50,000 5,000 45,000
Furniture and fittings 80,000 8,000 72,000
2,430,000 424,000 2,006,000
Current assets
Inventory 44,000
Trade receivables (w6) 80,200
Prepaid insurance 1,400
Bank balance 152,200
Cash in hand 6,160 283,960
Total assets 2,289,960
Liabilities and Equity
Current liabilities
Trade payables 60,700
Accruals: (w7) 12,160 72,860
Long term liabilities
5% debentures 100,000
Equity
Ordinary shares (w8) 750,000
6% preferences shares(w8) 1000,000
Share premium (w8) 40,000
General reserve (w8) 100,000
Proposed dividends(w8) 105,000
Retained earnings(w8) 122,100 2,117,100
Total equity and liabilities 2,289,960

Workings
W1
Insurance Account
Sh. ‘000’ Sh. ‘000’
Balance b/d 8,400 Income statement 7,000
______ Balance c/d 1,400
8,400 8,400
W2
Salaries and wages account
Sh. ‘000’ Sh. ‘000’
Balance b/d 117840 Income statement 120,000
Balance c/d 2160 ______
120,000 120,000
W3
Audit fees account
Shs ‘000’ Shs ‘000’
Cash 9000 Income statement 10,000
Balance c/d 1000 -
10,000 10,000

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W4
Directors’ emoluments
Shs ‘000’ Shs ‘000’
Cash 80,000 Income statement 84,000
Balance c/d 4,000 -
84,000 84,000
W5
Depreciation
Asset Computation Depreciation Charge
Shs ‘000’ Shs ‘000’
Plant and machinery 10%×1,800,000 180,000
Motor vehicles 15 %× (200,000-60,000) 21,000
Office equipment 10 %× 50,000 5,000
Furniture and fixtures 10 %×80,000 8,000

W6
Trade receivables account
Balance b/d 90,200 Allowance bad debts 10,000
- Balance c/d 80,200
90,200 90,200
W7
Accruals: Sh
Debenture interest 5,000
Audit expenses 1,000
Salaries and wages 2,160
Directors emoluments 4,000
12,160
W8
Shareholders fund movement’s schedule
For the year ended 31st December 2011
Ordinary Preference Share General Proposed Retained
shares shares premium reserve dividends earnings
Sh. ‘000’ Sh. ‘000’ Sh. ‘000’ Sh.‘000’ Sh.‘000’ Sh. ‘000’
Bal b/d 750,000 1000,000 40,000 - - 30,000
General reserve - - - 100,000 - (100,000)
Proposed Div;
Preference - - - - 60,000 (60,000)
Ordinary - - - - 45,000 (45,000)
Net profit - - - - - 297,100
750,000 1,000,000 40,000 100,000 105,000 122,100

May 2012 Question One

QUESTION 8
a)
Prestige boutique limited
Statement of comprehensive income for the year ended 31 December 2010
Sh. ‘000’
Revenue 269,500
Cost of sales(w1) (215,600)
Gross profit 53,900
Other income (profit on disposal of plant) 2,600
Administrative expenses (w2) (43,700)
Finance costs (2,000)
Profit for the year 10,800
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Other comprehensive income;
Gains on revaluation of property 39,200
Total income 50,000
Appropriation:
Transfer to general reserve (1,600)
Dividend paid (1,500)
Income for the year 46,900
Add: Retained earnings 24,200
Total comprehensive income 71,100

b) Statement of financial position as at 31st December 2010

Asset Sh. ‘000’ Sh. ‘000’
Non – current assets
Property, plant and equipment
Property at valuation 80,000
Plant: cost 29,800
Goodwill 2,000
Available for sale financial assets 23,100
Current assets
Inventory 22,000
Trade receivables 17,900
Prepayments 600
Cash 12,600 53,100
Total 188,000
Equity and liabilities
Capital and reserves
Ordinary share capital 50,000
Share premium 7,000
General reserves 18,700
Retained earnings 71,100 146,800
Non-current liabilities
10% debentures (secured on land and buildings) 20,000
Current liabilities
Trade payables 19,500
Accrued expenses 1,700 21,200
Total equity and liabilities 188,000

Workings
1. Cost of sales
Shs.‘000’
Opening inventory 19,000
Purchases (215,200 + 3,400) 218,600
Closing inventory (22,000)
215,600
2. Administrative expenses
Sh. ‘000’
Wages, salaries and comm. (25,400 +2,000) 27,400
Sundry expenses (11,300 – 600) 10,700
Electricity (3,100 – 2,060 + 300) 1,400
Depreciation: buildings 200
Plant 3,600
Audit fees 400
43,700
May 2011 Question One

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QUESTION 9
a)
Preparation of income statement
Kaki income Statement
For the year ended 31st October 2010
Sh ‘000 Sh ‘000’
Sales(w2) 38,335
Opening Inventory 2,790
Purchases (w1) 21,815
24,605
Closing Inventory (3,560) (21,045)
17,290
Discount received 502
Investment income 550
Decrease in bad debt provision(w4) 40
18,382
Debenture interest 100
Discount allowed 340
Salaries 2,850
Rates and insurance (w5) 1,462
Office expenses 1,472
Directors remuneration 500
Bad debts 40
Depreciation : 1. Furniture (w3) 150
2. Motor Vehicle (w3) 310 (7,224)
Profit for the year 11,158
Corporation tax (1,614)
Profit after tax 9,544
Revenue reserve 1,650
11,194
Transfer to general reserve (500)
10,694
Dividend paid: Preference (320)
Ordinary (1,500) (1,820)
Final proposed : Preference (320)
Ordinary (1,500) (1,820)
7,024
b) Preparation of statement of financial position
Kaki Ltd
Statement of Financial Position
As at 31 October 2010
Shs “000” Shs “000” Shs “000”
Non-current Assets
Buildings 17,000 17,000
Furniture & Fitting 1,500 (450) 1,050
Motor vehicle 3,100 (760) 2,340
21,600 1,210 20,390
Financial Assets 8,000
Goodwill 2,500
30,890
Current Assets
Inventory 3,560
Receivables(w6) 2,485
Insurance prepaid 240

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Bank 1,278 7,563
38,453

8% Redeemable pref. shares 8,000

Ordinary shares 15,000

Capital Reserve
Share premium 800
Revenue Reserve:
General Reserve 1,500
Proposed dividend 1,500
Income statement 7,024 10,824
10% Debenture 1,000
34,824
Current liabilities:
Payables (w7) 1,645
Preference Dividends 320
Accrued debenture Interest 50
Tax payables 1,614 3,629
38,453

Workings
W1
Correction of error
Purchase account
Sh‘000’ Sh‘000’
Credit purchase 22,180 Sales 365
______ Balance c/d 21,815
22,180 22,180
W2
Sales account
Sh‘000’ Sh‘000’
Balance c/d 38,335 Credit sales 37,950
_____ Omission 365
38,335 38,335

W3 Depreciation
i) Furniture and fittings
12.5 %×( 500,000 – 300,000) =150,000
ii) Motor vehicle
10% x 1,100,000 = 310,000

W4
Allowance for bad and doubtful debts account
Shs Shs
Income statement 40,000 Bal. b/d 280,000
Balance c/d 240,000 _______
280,000 280,000

W5 Insurance prepaid
6
/12×480,000 = 240,000

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Rates and insurance account
Shs Shs
Cash 1,702,000 Income statement 1,462,000
______ Balance c/d 240,000
1,702,000 1,702,000

W6 Trade receivables account

‘000’ ‘000’
Balance b/d 2,400 Provision 240
- Bad debts w/o 40
- Invoice omission 365
- Balance c/d 2,485
2,400 2,400,

W7
Trade Payables account
Shs Shs
Error / invoice 365,000 Balance b/d 2,010,000
Balance c/d 1,645,000 _____
2,010,000 2,010,000

December 2010 Question One

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REVISION PARTNER 131

TOPIC 8
FINANCIAL STATEMENTS OF A MANUFACTURING
ENTITY
QUESTION 1
a) Manufacturing account
Carol and Mary
Manufacturing Account for year ended 31st December 2013
Sh‘000’ Sh.‘000’
Direct materials
Opening inventory 2,300
Purchases of raw materials 14,590
Direct raw material for use 16,890
Less: Closing inventory (1,900)
Direct raw material used 14,990

Indirect factory costs

General expenses 9,478
Factory wages 7,630
Depreciation:
Factory building 408
Plant 1,722 19,238
Gross cost of production 34,228
Add: Work in progress at start 2,210
Less: Work in progress at end (2,880)
Cost of production 33,558
Add: Manufacturing profit 6,586.8
Cost of goods transferred to warehouse (16,727 × 40,144.8
2,400)

b) Income Statement for the year ended 31 December 2013

Carol and Mary

Income statement for the year ended 31st December 2013.
Sh‘000’ Sh.‘000’
Sales 63,200.00
Less: Return inwards 112.00
63,088.00
Less: Cost of sales
Opening inventory 20,500.00
Cost of finished goods 40,144.80
Goods available for sale 60,644.80
Less: Closing inventory (17,428.80) 43,216.00
Gross profit 19,872.00
Other incomes
Decrease in provision for doubtful debt 236.00
20,108.00
Manufacturing profit 6,586.80
Less: Expenses
General expense 10,234.00
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Depreciation: Delivery vans 1,620.00
Office salaries 2,500.00 (14,354.00)
12,340.80
Salary
Carol 25% x 6,586.80 1,646.70
Mary 10% x 19,872.00 1,987.20 (3,633.90)
8,706.90
Share of profit
Carol ½ x 8,706.90 4,353.45
Mary ½ x 8,706.90 4,353.45
8,706.90
Nil

c) Statement of Financial Position as at 31st December 2013

Carol and Mary

Statement of Financial Position as at 31st December 2013
Non-Current Asset Cost Acc. Dep. N.B.V
Sh. ‘000’ Sh. ‘000’ Sh. ‘000’
Fixed Assets
Land 15,200 - 15,200
Factory building 20,400 15,778.00 4,622
Delivery van 8,100 3,532.00 4,568
Plant 17,220 7,592.00 9,628
34,018
Current assets
Inventory
Raw materials 1,900.00
Work in progress 2,880.00
Finished goods 17,428.80
Less: Provision for unrealised profits 2,050.00 15,378.80
Trade receivables 10680.00
Less: Provision for doubtful debt (534.00) 10,146.00 30,304.80
Total assets 64,322.80

Capital and liabilities

Capital: Carol 25,000.15
Mary 25,540.65 50,540.80

Current Liabilities
Trade payables 2,640.00
Accruals 2,512.00
Tax 3,960.00
Bank Overdraft 4,670.00 13,782.00
64,322.80
Workings
W1
Allowance for bad debts
Sh ‘000’ Sh ‘000’
Income statement 236 Bal b/d 770
Bal c/d (5% x 15680) 534 ___
770 770
W2
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General Expenses Account (Factory)
Sh ‘000’ Sh ‘000’
Bank 7,730 Income statement 9,478
Balance c/d 1,748 ____
9,478 9,478

W3
General Expenses Account (Office)
Sh ‘000’ Sh ‘000’
Bank 9,470 Income statement 10,234
Balance c/d 764 _____
10,234 10,234

W4
Sh ‘000’
1. Factory building 2% x 20,400 = 408
2. Plant 10% x 17,220 = 1,722
3. Delivery Vans 20% x 8,100 = 1,620

W5
Capital account
Carol Mary Carol Mary
Sh ‘000’ Sh ‘000’ Sh ‘000’ Sh ‘000’
Drawings 5,000 4,800 Balance b/d 24,000 24,000
Balance c/d 25,000 25,540 Salary 1,646 1,987
Share of profit 4,353 4,353
30,000 30,340 30,000 30,340

May 2014 Question One

QUESTION 2
a) Manufacturing account
Mboyamak limited
Manufacturing account for the period / year ended 31 December 2012
Direct raw materials Sh. Sh.
Opening inventory 1,270,000
Purchase of raw materials 4,576,750
Carriage inwards 98,000
Raw materials available for use 5,944,750
Less: Closing inventory (1,445,000)
Direct raw materials used 4,499,750
Direct labour 4,210,400
Prime Cost 8,710,150
Indirect factory expenses
Depreciation on machinery 510,000
Electricity 406,000
Rent (¾ × 260,000) 195,000 1,111,000
Gross cost of production 9,821,150
Add work in progress at start 1,555,000
Less work in progress at end (1,230,000)
Cost of finished goods 10,146,150
Add profit mark up 20% 2,029,230
Cost of finished goods transferred to trading 12,175,380

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REVISION PARTNER 134
b) Income statement
Mboyamak Limited
Income statement for the year ended 31 December 2012
Sh. Sh.
Sales 15,931,100
Less Cost of sales
Opening inventory 1,163,000
Cost of finished goods transferred 12,175,380
Cost of goods available for sale 13,338,380
Less: Closing inventory (1,442,000) (11,896,380)
Gross profit 4,034,720
Less expenses
Rent( ¼ × 260,000) 65,000
Depreciation on office equipment 115,000
Office salaries 1,670,950
Office Electricity 221,000 (2,070,950)
Net profit 2,962,770
May 2013 Question One
QUESTION 3
a) Manufacturing account
Kate and Robert
Manufacturing Account
For the year ended 30th September 2012
Prime Costs Shs Shs Shs
Cost of raw materials used
Opening stock of raw materials 400,000
Add: Purchases 2,900,000
Cost of raw materials available 3,300,000
Less: Closing stock of raw materials (340,000)
Cost of materials used 2,960,000
Direct Labour
Factory wages 1,650,000
Total Prime cost 4,610,000
Factory Overheads
General expenses 1,250,000
Add: Accrued 300,000
Less: Prepaid (20,000) 1,530,000
Depreciation factory building 80,000
Depreciation Plant 300,000
Total factory overheads 1,910,000
Total production cost 6,520,000
Add: Work in progress (opening) 420,000
Less: Work in progress (closing) (530,000)
Cost of goods manufactured 6,410,000
Add: Factory profit 990,000
Transfer value of Goods manufactured 7,400,000
b) Income statement
Kate and Robert
Income statement
For the year ended 30th September 2012
Shs Shs Shs
Sales 12,000,000
Less: Return inwards 140,000
Net sales 11,860,000
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REVISION PARTNER 135

Less: cost of goods sold

Opening stock of finished goods 5,000,000
Add: Cost of goods manufactured goods 7,400,000
Less: Closing stock of finished goods (4,600,000)
Cost of goods (7,800,000)
Gross profit 4,060,000
Add: Other incomes
Factory profit 990,000
Increase in provision for bad debts(w1) (27,000)
Total Income 5,023,000
Less: Administration expenses
General administrative expenses 1,400,000
Add: Accrued 320,000
Less; Prepaid (12,000) 1,708,000
Office salaries 480,000
Depreciation on motor vehicles 120,000 (2,308,000)
Net profit for the year 2,715,000
Entitlements: Kate (1/3 × 990,000) 330,000
Robert (10% ×4,060,000) 406,000 (736,000)
Profit 1,979,000
Share of profit: Kate 3/5 × 1,979,000 1,187,400
Robert 2/5 × 1,979,000 791,600
1,979,000

c) Statement of financial position

Kate and Robert Balance Sheet
As at 31st September 2012
Non-current Assets Sh. ‘000’ Sh. ‘000’ Sh. ‘000’
Cost Acc. Dep NBV
Land 3,000 - 3,000
Factory & buildings 4,000 1,580 2,420
Plant 3,000 1,100 1,900
Motor Vehicles 800 280 520
10,800 2,960 7,840
Current Assets
Stock:
Raw materials 340
Work in progress 530
Finished goods 4,600
Accounts receivable (w2) 1,953
Prepaid expenses 32
Bank 500 7,955
15,795
Financed by:-
Capital: (w3)
Kate 4,567.4
Robert 5,397.6 9,965

Non-current liabilities
Interest free loan 4,660
Current Liabilities
Creditors 550
Accrued expenses 620 1,170
15,795

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Workings
W1
Provision for bad debts account
10%×2,170,000 = shs. 217,000

Allowance for doubtful debts account

Sh. Sh.
- Balance b/d 190,000
Balance c/d 217,000 Income statement 27,000
217,000 217,000
W2
Accounts receivable account
Sh. Sh.
Balance b/d 2,170,000 Allowance for bad debts 217,000
- Income statement 1,953,000
2,170,000 2,170,000

W3
Capital Account
Details Kate Robert Details Kate Robert
Sh ‘000’ Sh ‘000’ Sh ‘000’ Sh ‘000’
Drawings 950 800 Balance b/d 4,000 5,000
Balance c/d 4,567.4 5,397.6 Entitlement 330 406
- - Share of profits 1,187.4 791.6
5,517.4 6,197.6 5,517.4 6,197.6

W4
Depreciation
Factory building=2%×4,000,000= shs 80,000
Plant 10%×3,000,000= shs 300,000
Motor vehicles 15%×800,000=shs.120, 000
November 2012 Question Four

QUESTION 4
d) In relation to manufacturing concern
i) Cost apportionment is the sharing of a common cost amongst cost centres.
ii) Four consideration that management should take into account in choosing the basis of
cost apportionment

1. Level of significance of the overhead cost

2. Management policy-The absorption base should not be inconsistent with
management policies on absorption
3. The relationship of overhead cost and basis of apportionment
4. Availability of information in relation to basis of apportionment
5. Management should consider if the basis is equitable
May 2012 Question Five D

QUESTION 5
a) Manufacturing, trading and income statement
Babycare Ltd
Manufacturing, trading and income statement
For the year ended 30 April 2011
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Production cost Sh. Sh.
Opening stock of raw materials 204,330
Purchases of raw materials 5,504,280
Returns out of raw materials (19,020)
Closing stock of raw materials (835,530)
Cost of raw material used 4,854,060
Direct wages 470,220
Prime cost 5,324,280

Indirect Expenses
Salary for factory manager 180,000
Depreciation: Plant(w1) 61,200
Building(w1) 18,000
Factory power 135,360
Electricity(w3) 65,120
Rates and insurance(w3) 36,860
Maintenance (w3) 43,880
Sundry (w3) 116,600
Total indirect expenses 657,020
Opening work-in-progress 345,960
Closing work-in-progress (494,700) (148,740)
Total cost of production 5,832,560

Sales 7,362,540
Returns inwards (8,070)
Net sales 7,354,470
Cost of production:
Opening finished goods 650,070
Total cost of production 5,832,560
Closing finished goods (618,810) (5,863,820)
Gross profit 1,490,650
Expenses:
Administration overheads:
Electricity(w3) 32,560
Rates and insurance(w3) 18,430
Maintenance (w3) 21,940
Sundry(w3) 58,300
Depreciation: Motor vehicles (w1) 33,750
Fixtures and fittings (w1) 16,750
Increase in allowance for doubtful debts (w2) 37,800
Debenture interest(w4) 90,000
Bad debts 29,370
Salaries 540,000
Advertising 51,480
Transport expenses 138,270
Bank charges 17,550 (1,086,200)
Net profit 404,450
Appropriation:
Retained profits b/d 107,440
Less: Ordinary dividends – interim paid (75,000)
Final (112,500)
Retained profits c/d 324,390

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b) Statement of financial position
Babycare Ltd
Statement of financial position
As at April 2010
Non-current assets Cost Acc. Dep NBV
Sh. Sh. Sh
Buildings 450,000 36,000(w1) 414,000
Land 300,000 - 300,000
Plant 780,000 433,200(w1) 346,800
Motor vehicles 318,000 216,750(w1) 101,250
Fixtures and fittings 238,230 87,480(w1) 150,750
1,312,800
Current assets
Inventory (w5) 1,949,040
Trade receivable (w6) 713,070
Bank balance 201,420 2,863,530
Total assets 4,176,330

Equity and liabilities:

Ordinary share Capital 1,500,000
General reserve 1,200,000
Retained profits 324,390
Current liabilities
Trade payables 349,440
Debentures interest payable 90,000
Final dividends payable 112,500 551,940
Non-current liabilities
15% debentures 600,000
Total Equity and Liabilities 4,176,330

Workings
W1
Depreciation
Asset Computation Depreciation
Shs.
Motor vehicles 25 %×( 318,000-183,000) 33,750
Sh 33,750+183,000 216,750
Fixtures and fittings 10 %×( 238,230-70,730) 16,750
Sh 16,750+70,730 87,480
Plant 15 %×( 780,000-372,000) 61,200
Sh 61,200 + 372,000 433,200
Buildings (factory expense) 4%×450,000 18,000
18,000+18,000 36,000

W2 Allowance for bad and doubtful debts a/c

10%× 792,300=79,230

Allowance for bad and doubtful debts a/c

Shs. Shs.
Balance b/d 41,430
Balance c/d 79,230 Income statement 37,800
79,230 79,230

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W3
Apportionment of expenses
Ratio 2 1
Expense Total Factory Administration
Shs. Shs. Shs.
Electricity 97,680 65,120 32,560
Rates and insurance 55,290 36,860 18,430
Sundry expenses 174,900 116,600 58,300
Maintenance 65,820 43,880 21,940

W4
Debenture interest =15%×600,000=90,000

W5
Inventory Sh.
Raw materials 835,530
Work-in-progress 494,700
Finished goods 618,810
1,949,040
W6
Trade receivables account
Shs Shs
Balance b/d 792,000 Allowance for bad debts 79,200
- Balance c/d 713,070
792,000 792,000

December 2011 Question Two

QUESTION 6
a) Distinction between prime costs and indirect costs in the context of manufacturing
accounts
Prime Cost also called direct cost is the costs that can be traced to each unit produced
examples include raw materials and direct labour.
Indirect costs also called Factory overhead are costs incurred in the production of goods
but cannot be directly attributed to any one particular unit. Examples include Managers
salaries. Factory rent, depreciation of plant and machinery and other factory expenses like
lighting and water.

b)
Uvumbuzi Ltd
Manufacturing and income statement
for the year ended 30 June 2010
Sh Sh
Raw materials cost
Opening stock 700,000
Purchases 5,186,000
Closing stock (562,000)
Raw materials consumed 5,324,000
Manufacturing wages 5,014,000
Prime cost 10,338,000

Add: production overheads

Insurance (w2) 160,650
Director emoluments 200,000
Factory rates(w3) 391,925
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Depreciation (plant) (w1) 1,095,000
Factory rent(w5) 333,858
Electricity(w5) 383,558
Lighting 300,140
Maintenance of plants and machinery 301,020
3,166,151 3,166,151
13,504,151
Add: opening work in progress 1,260,000
Less: closing work in progress (471,900)
Total: production cost 14,292,251
Add: manufacturing profit 707,749
Transfer price 15,000,000

Sales 25,850,000
Less: cost of sales
Opening stock 2,500,000
Add: good produced 15,000,000
17,500,000
Less: closing stock (1,000,000) 16,500,000
Gross profit 9,350,410
Add: manufacturing profit (707,749)
10,058,159
Less: unrealized profit on closing stock (w6) (47,183)
Realized gross profit 10,010,976

Less: expenses
Administrative expenses
Office insurance(w2) 32,130
Office salaries 1,017,760
Director emoluments 401,140
Office rates(w3) 78,385 (1,529,415)
Depreciation expense;
Office equipment(w1) 110,000
Buildings(w1) 26,000
Office rent(w5) 66,772
Office electricity(w5) 76,712
General administration cost 630,110 (909,594)

Selling & distribution

Salesman salaries 642,370
Increase in provision for bad debts(w4) 40,000
Depreciation for motor vehicles(w1) 300,000
Distribution costs 850,130
Advertising 1,900,480 (3,732,980)
Finance charges
Bank interest (70,700)
Profit for the year 3,768,287
Less corporation tax (1,000,000)
Less dividends
Interim paid-preference (200,000)
Ordinary (1,800,000)
Retained profit for the year 768,287
Add: Retained profit b/d 424,750
Retained profit c/d 1,193,037

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Workings
W1 Depreciation
Plant =15%×7,300,000 =shs 1,095,000.
Office equipment =10%×1,100,000 = shs 110,000.
Motor vehicles = 25%×1,200,000 = shs .300, 000.
Buildings = 2%×1,300,000 = shs.26,000.

W2
Insurance account
Shs Shs
Cash 201,160 Income statement 192,780
- Balance c/d 8,380
201,160 201,160

Factory 5/6 ×192,780 =shs.160, 650

Office 1/6×192,780 = shs.32, 130

W3
Rates account
Shs Shs
Cash 501,710 Income statement 470,310
- Balance c/d 31,400
501,710 501,710

Factory =5/6×470,310=391,925
Office = 1/6×470,310=78,385

W4
Provision for bad and doubtful debts= 1%×500,000=50,000

Provision for bad and doubtful debts a/c

Sh Sh
Balance b/d 10,000
Balance c/d 50,000 Income statement 40,000
50,000 50,000
W5

Ratio 5 1
Expense Total Factory Office
Sh Sh Sh
Rent 400,630 5/6×400,630 = 1/6×400,630 =
Electricity 460,270 333,858 66,772
5/6×460,270 = 1/6×460,270 =
383,558 76,712

W6
Unrealized profit on closing stock

Profit per unit of goods produced = 707,749

1,500 units
= 471.833
Unrealized profit = 471.833 x 100units
= Shs.47,183
December 2010 Question Three A&B
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TOPIC 9
FINANCIAL STATEMENTS OF A NOT-FOR-PROFIT
ORGANISATION
QUESTION 1
a) Bar income Statement
Jamii Sports Club
Bar income Statement
Sh. ‘000’ Sh. ‘000’ Sh. ‘000’
Bar sales (1,200 + 12,600) 13,800
Cost of sales
Opening stock 1,800
Add purchases (200 + 8,400) 8,600
Closing stock (2,200-80) (2,120) (8,280)
Gross profit 5,520
Less expenses
Depreciation furniture and fittings (w4) 220
Bar wages(w3) 1,320 (1,540)
3,980

b) Income and expenditure account

Jamii Sports club
Income and expenditure account for the year ended 30 June 2014
Sh. ‘000’ Sh. ‘000’
Incomes
Subscriptions 18,200
Fees collectors 5,620
Donations 4,200
Bar profit 3,980
32,000
Expenses
Loss on disposal of equipment(w7) 60
Club maintained cost 240
Travelling expenses 320
Field expenses 2,500
Salaries and wages 6,600
Water and electricity 820
External coach fee 2,400
Secretary honoraria(w10) 6,090
Depreciation(w12)
Club house 350
Sports equipment 860
Computer 480
Furniture & Fittings 240 (20,960)
Surplus 11,070

c) Statement of Financial Position

Jamii Sports Club
Statement of Financial Position as at 30 June 2014
Sh. ‘000’ Sh. ‘000’ Sh. ‘000’
Non-Current assets
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Club house 14,000 350 13,650

Sports equipment 8,600 3,120 5,480
Furniture & Fittings 4,600 1,260 3,340
Computers 2,400 780 1,620
29,600 5,510 24,090
Current assets
Bar inventory (2,200-80) 2,120
Bar receivables 1,200
Subscriptions in arrears 2,400
Bank and Cash (8,000 + 2,620) 10,620 16,340
40,430

Capital & Liabilities

Capital(w11) 26,250
Profit 11,040
Current liabilities
Subscriptions in advance 1,800
Bar payables 1,000
Bar wages due 100
Secretary honoraria due (w10) 240 3,140
40,430

Workings
W1
Trade receivables Account
Sh. ‘000’ Sh. ‘000’
Credit sales 1,200 Balance c/d 1,200
____ ____
1,200 1,200

W2
Capital Account
Sh. ‘000’ Sh. ‘000’
Balance c/d 1,000 Balance b/d 800
____ Credit purchases 200
1,000 1,000

W3
Bar Wages Account
Sh. ‘000’ Sh. ‘000’
Cash 1,400 Balance b/d 180
Balance c/d 100 Bar income & expenditure 1,320
1,500 1,500

W4 Depreciation on furniture & fittings (new)

2,200, 000×10% = 220,000
W5
Subscriptions Account
Sh. ‘000’ Sh. ‘000’
Balance c/d 2,200 Balance b/d 1,200
Refunds 200 Cash 18,800
Income and expenditure 18,200 Balance c/d 2,400
Balance c/d 1,800 -
22,400 22,400

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W6
Sports Equipment Account
Sh. ‘000’ Sh. ‘000’
Balance c/d 6,800 Disposal 1,800
Cash 3,600 Balance c/d 8,600
10,400 10,400

W7
Sports Equipment Disposal Account
Sh. ‘000’ Sh. ‘000’
Sports equipment 1,800 Provision for depreciation 540
Cash 1,200
____ Loss on disposal 60
1,800 1,800
W8
Furniture and Fittings Account
Sh. ‘000’ Sh. ‘000’
Balance b/d 2,400 Balance c/d 4,600
Cash 2,200 _____
4,600 4,600

W9
Computers Account
Sh. ‘000’ Sh. ‘000’
Balance c/d 1,200 Balance c/d 2,400
Cash 1,200 _____
2,400 2,400

W10
Secretary honoraria Account
Sh. ‘000’ Sh. ‘000’
Cash 6,200 Balance b/d 350
Balance c/d 240 Income and Expenditure 6,090
6,440 6,440

W11
Statement of affairs as at 1 July 2013
Sh. ‘000’ Sh. ‘000’ Sh. ‘000’
Non-current assets
Sports equipment 6,800 2,800 4,000
Club house 14,000 - 14,000
Furniture & Fittings 2,400 800 1,600
Computers 1,200 300 900
24,400 3,900 20,500
Current assets
Cash at hand 4,280
Bar inventory 1,800
Subscription in arrears 2,200 8,280
28,780
Capital and liabilities
Accumulated fund
26,250
Current liabilities
Bar payables 800
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Bar wages due 180

Secretary 350
Subscriptions in advance 1,200 2,530
28,780

W12
Depreciation (sh. ‘000’)
1. Club house 2.5% × 14,000 = 350
2. Sports equipment for club house 10% × 8,600 = 860
3. Computer 20% × 2,400 = 480
4. Furniture and fittings 10% ×2,400 = 240
November 2014 Question Three

QUESTION 2
c) Advantages of income and expenditure account as compared to a receipt and
payment account.
i) Income and expenditure account is not confined to cash transactions only, i.e. non-
cash transactions are also included in it. While in receipts and payment only cash
transactions are recorded here.
ii) Income and expenditure account closing balance represents either surplus or deficit.
Credit balance indicates surplus, while debit balance indicates deficit. While in
receipts and payment does not show deficit or surplus it only shows balance that is
carried down to the following year opening balance.

May 2014 Question Five C

QUESTION 3
a) Restaurant income statement
Restaurant trading account
Sh ‘000’ Sh ‘000’
Restaurant takings 6,250
Cost of sales
Opening stock 1,100
Purchases 4,275
Goods available for sale 5,375
Less closing stock 1,900 (3,475)
2,775
Less expenses
Restaurant wages 1,360
Depreciation on Furniture and fittings 204 (1,564)
Net profit 1,211

b) Income and expenditure account

Jenga afya spors club

Income and expenditure account
For the year ended June 2013
Sh ‘000’ Sh ‘000’
Loss on sale of equipment 150 Profit from restaurant 1,211
Depreciation Subscriptions 11,220
Gym equipment 1,200 Gym service income 6,200
Furniture and fittings 306
Sports pavilion 500 -
Office computer 200
Bad debt written off 120
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Electricity 375
Coach fees 3,200
Honoraria to secretary 4,600
Club maintenance expense 20
Gym expense 1,500
Travelling expenses 420
Salary and wages 1,470
Surplus 4,390 -
18,631 18,631

c) Statement of financial position

Jenga afya spors club

Statement of financial position
For the year ended June 2013
Cost Acc. Dep. NBV
Sh ‘000’ Sh ‘000’ Sh ‘000’
Non-current assets
Sports pavilion 10,000 500 9,500
Gym equipment 8,000 2,150 5,850
Furniture and fittings 5,100 1,710 3,390
Computers 1,000 200 800
24,100 4,560 19,540
Current assets
Inventory 1,900
Subscription in arrears 1,500
Prepaid electricity 150
Cash in hand 1,500
Cash at bank 5,000 10,050
29,590
Capital and liabilities
Accumulated fund 22,375
Surplus 4,390
Less drawings (75)
26,690
Current liabilities
Payables 600
Subscription in advance 1,800
Accrued coach fee 500 2,900
29,590

Workings
W1
Accounts payable control account
Sh ‘000’ Sh ‘000’
Restaurant payables 4,250 Balance b/d 500
Balance c/d 600 Credit purchases 4,350
4,850 4,850

W2
Subscriptions account
Sh ‘000’ Sh ‘000’
Balance b/d 1,200 Balance b/d 600
Income and expenditure 11,220 Bank/Cash 12,000

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Balance c/d 1,800 Bad debts w/off 120
- Balance c/d 1,500
14,220 14,220

W3
Gym equipment account
Sh ‘000’ Sh ‘000’
Balance b/d 6,000 Disposal 1,000
Bank 3,000 Balance c/d 8,000
9,000 9,000

W4
Gym equipment disposal account
Sh ‘000’ Sh ‘000’
Gym equipment 1,000 Cash 400
- Depreciation 450
- Loss 150
1,000 1,000
W5
Trial Balance as at 1 July 2012
Dr. Cr.
Sh ‘000’ Sh ‘000’
Sports pavilion 10,000 -
Gym equipment 6,000 -
Furniture and fittings 4,000 -
Accumulated depreciation
Gym equipment - 1,400
Furniture and fittings - 1,200
Subscriptions received in advance - 600
Subscriptions in arrears 1,200 -
Coaches fees outstanding - 400
Restaurant payables - 500
Prepaid electricity 125 -
Restaurant inventory 1,100 -
Cash in hand 2,400 -
Cash at bank 1,650 -
Accumulated fund - 22,375
26,475 26,475

W6
Electricity account
Sh.000 Sh.000
Balance b/d 125 Income statement 375
Cash 400 Balance c/d 150
525 525

W7
Coach’s fee account
Sh.000 Sh.000
Cash 3,100 Balance b/d 400
Balance c/d 500 Income statement 3,200
3,600 3,600

November 2013 Question One

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QUESTION 4
a) Subscriptions account for the year ended 31 July 2012
Subscription Account
Sh. Sh.
Balance b/d 24,000 Balance b/d 12,800
Subscription income 11,200,800 Cash received 11,200,000
Balance c/d 20,000 Balance c/d 32,000
- -
11,244,800 11,244,800

b) Receipts and payments account

Receipts and payment Account

For the year ended 31 July 2012
Sh. sh.
Bank b/d 1,800,000 Medicine purchased 6,382,000
Cash b/d 68,000 Honoraria to doctors 2,400,000
Subscription received 11,199,200 Salaries 5,500,000
Donation 1,900,000 Electricity and water (w3) 90,400
Annual walk 2,200,000 Rent 1,200,000
Film show 2,290,000 Film show expenses 56,000
Annual walk expenses 100,000
Printing expenses 220,000
Land 2,000,000
Equipment(w2) 1,110,000
Cash c/d 32,000
Bank 366,800
-
19,457,200 19,457,200

Statement of financial position

As at 31 July 2012
Non-Current assets Shs Shs
Land 2,000,000
Equipment 2,780,000
Fixtures and fittings 3,780,000
8,560,000
Current Assets
Stock of medicine 1,950,000
Acc. Subscription 32,000
Bank 366,800
Cash 32,000 2,380,800
10,940,800
Financed by:-
Accumulated Fund b/d (w4) 9,944,800
Surplus 953,000 10,897,800
Current Liabilities
Accrued Electricity 23,000
Subsidiary in adv. 20,000 43,000
10,940,800

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Workings
W1
Medicine Account
Sh. Sh.
Balance b/d 1,564,000 Used medicines 5,996,000
Cash 6,382,000 Balance c/d 1,950,000
7,946,000 7,946,000

W2
Equipment account
Sh. Sh.
Balance b/d 2,320,000 Depreciation 650,000
Cash 1,110,000 Balance c/d 2,780,000
3,430,000 3430000

W3
Electricity and water account
Sh. Sh.
Receipts and payments 90,400 Balance b/d 18,400
Balance c/d 23,000 Income and expenditure 95,000
113,400 113,400

W4
Accumulated fund working
Assets Shs
Fixtures and fittings 4,200,000
Equipment 2,320,000
Cash 68,000
Bank 1,800,000
Stock 1,564,000
Accrued Subscriptions 24,000
9,976,000
Liabilities
Subscriptions in advance 12,800
Accrued Electricity 18,400
Accumulated fund 9,944,800
9,976,000

November 2012 Question Three

QUESTION 5
c) Differences between receipts and payment account and income and expenditure
account

Receipt and payment account Income and expenditure account

1. It is a summary of cash receipts and payments 1. It is a substitute of profit and loss a/c
2. No distinction is made between revenue and 2. Only revenue items are shown
capital items
3 May include items relating to past as well as 3. It includes only items relating to the
future current period
4. Based on receipts basis of accounts system 4. Based on accrual basis of accounts

May 2012 Question Five C

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QUESTION 6
a) Income and expenditure account
Mbedodo
Income and expenditure account for the year ended 30 June 2011
Incomes Sh ‘000’ Sh. ‘000
Profit from trading/ bar profit(w2) 10,000
Subscriptions(w3) 50,700
Interests earned 1,750
Entrance fees 32,060
Competition receipts 25,820
120,330
Expenses
Prizes given 2,400
Leave allowance 900
Basic salary 18,000
Competition prizes 14,400
Rent (W4) 19,680
Depreciation gym equipment 25,000
Casual wages 7,200
Rates 1,200
Lighting & water 5,040
Stationery & postage 3,840
Repairs to gym 3,300
Ground upkeep 4,500 (105,460)
Surplus 14,870

b) Statement of financial position

Mbedodo
Statement of financial position as at 30 June 2011
Shs. ‘000’
Non-current assets
Land 650,000
Gym & equipment (w7) 225,000
875,000
Current assets
Subscriptions Accrued 5,100
Bar inventory 9,600
Prices in land 2,400
SACCO 35,000
Bank 6,130
Prepaid rent 4,920
Interest receivable 1,750
Total assets 939,900

Financed by:
Accumulated fund (w6) 916,290
Surplus 14,870

Current liabilities
Leave allowance 900
Bar manager bonus 500
Bar surplus 5,640
Prepaid subscriptions 1,700
Total capital liabilities 939,900

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Workings
W1 Depreciation gym equipment= (10%× 250,000) = Shs. 25,000
W2
Bar Trading Profit & Loss a/c
Shs. ‘000’ Shs. ‘000’
Bar sales 60,840
Cost of sales
Opening inventory 10,800
Bar purchases 43,740
Closing bar inventory (9,600) (44,940)
Gross profit 15,900
Bonus to manager 500
Bar manager’s salary 5,400 5,900
10,000
W3
Subscription account ac
Shs. ‘000’ Shs. ‘000’

Balance b /d 2,550 Cash 49,850

Income and expenditure 50,700 Accrued 5,100
Prepaid c/d 1,700 -
54,950 54,950
W4
Rent account
Shs. ‘000’ Shs. ‘000’
Cash book 24,600 Income statement 19,680
- Prepaid c/d 4,920
24,600 24,600
W5
Prizes in land account
Shs. ‘000’ Shs. ‘000’
Balance b/d 4,800 Income statement 2,400
- Prepaid c/d 2,400
4,800 4,800
W6
Statement of affairs
Dr. Cr.
Shs. ‘000’ Shs. ‘000’
Land 650,000
Property & equipment 250,000
Bar inv. 10,800
Prices in land 4,800
Subscriptions 2,550
Bank balance 2,340
Bar supplies accrued - 4,200
Accumulated fund - 916,290
920,490 920,490
W7
Gym equipment account
Shs. ‘000’ Shs. ‘000’
Balance b/d 250,000 Depreciation 25,000
- Balance c/d 225,000
250,000 250,000
December 2011 Question Four

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 REVISION PARTNER 152

TOPIC 10
ANALYSING FINANCIAL STATEMENTS
QUESTION 1
b) Cash flow statement
Shark Ltd
Statement of cash flows for the year ended 31st December 2015
Sh. Sh.
CASHFLOWS FROM OPERATING ACTIVITIES
Profit before tax 1,961,080
Depreciation 994,800
Investment income (22,680)
Gain on equip disposal (26,400)
Finance cost 316,000
Cash flows before W capital changes 1,261,720
Increase in inventory (775,840)
Decrease in trade receivables 979,780
Decrease in trade payables (578,280)
887,380
Tax paid (667,460)
Net cash flow from operating activities. 219,920

CASHFLOWS FROM INVESTMENT ACTIVITIES

Acquisition of N/current assets (3,704,800)
Sale of equipment 306,400
Investment Income 22,680 (3,375,720)
Net cash flows from Investing Activities

CASHFLOWS FROM FINANCING ACTIVITIES

Issue of O. shares(2,400,000+586,800) 2,986,800
Loan repayment (836,400)
Dividends paid (616,000)
Finance cost paid (316,000) 1,218,400
Changes in cash and cash equivalents for the year 23,680
Cash and cash equivalent 1.1.2014 214,160
Cash and cash equivalent 31.12.14 237,840

Workings
Non-current Assets a/c Provision for depreciation a/c
Sh. Sh. Sh. Sh.
Bal b/d 21,410,160 Disposals 359,220 Disposal 79,220 Balance b/d 5,003,760
Revaluation 1,344,800 Bal c/d 5,919,340 P&L {Dep exp for the yr 994,800
Cash 3,704,800 Bal. c/d 26,100,540 6,001,560 (bal fig)} 6,001,560
26,459,760 26,459,760

Equipment disposal a/c Tax a/c

Sh. Sh. Sh. Sh.
N/Curr. assets 359220 Prov for dep 79,220 Cash 667,460 Balance b/d 518,480
P & account 26,400 Cash 306400 Bal c/d 482,500 Income st”t 631,480
385,620 385,620 1,149,960 1,149,960

November 2014 Question Five B

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REVISION PARTNER 153
QUESTION 2
a) Limitation of ratio analysis
The following are the main limitations of accounting ratios:
1. False results if based on incorrect accounting data
Accounting ratios can be correct only if the data (on which they are based) are correct.
Sometimes, the information given in the financial statements is affected by window
dressing i.e. showing position better than what actually is. For example, if inventory
values are inflated or depreciation is not charged on fixed assets, not only will one have
an optimistic view of profitability of the concern but also of its financial position.
So the analyst must always be on the lookout for signs of window dressing, if any.
2. No idea of probable happenings in future
Ratios are an attempt to make an analysis of the past financial statements: so they are
historical documents.
3. Variation in accounting methods
The two firms’ results are comparable with the help of accounting ratios only if they
follow the same accounting methods or bases. Comparison will become difficult if the
two concerns follow the different methods of providing depreciation or valuing stock.
Similarly, if the two firms are following two different standards and methods, an analysis
by reference to the ratios would be misleading.
4. Price level changes
Changes in price levels make comparison for various years difficult. For example, the
ratio of sales to total assets in 2014 would be much higher than in 2004 due to rising
prices.
5. Only one method of analysis
Ratio analysis is only a beginning and gives just a fraction of information needed for
decision making. Therefore, to have a comprehensive analysis of financial statements,
ratios should be used along with other methods of analysis.
6. No common standards
It is very difficult to lay down a common standard for comparison because circumstances
differ from concern to concern and the nature of each industry is different. For example, a
business with current ratio of more than 2:1 might not be in a position to pay current
liabilities in time because of an unfavorable distribution of current assets in relation to
liquidity.
On the other hand, another business with a current ratio of even less than 2:1 might not be
experiencing any difficulty in making the payment of current liabilities in time because of
its favorable distribution of current assets in relation to liquidity.
7. Different meanings assigned to the same term
Different firms, in order to calculate ratio may assign different meanings. For example,
profit for the purpose of calculating a ratio may be taken as profit before charging interest
and tax or profit before tax but after interest or profit after tax and interest.
This may affect the calculation of ratio in different firms and such ratio when used for
comparison may lead to wrong conclusions.
8. Ignores qualification factors
Accounting ratios are tools of quantitative analysis only. But sometimes qualification
factors may surmount the quantitative aspects.
The calculations derived from the ratio analysis under such circumstances may get
distorted.
For example, though credit may be granted to a customer on the basis of information
regarding his financial position, yet the grant of credit ultimately depends on debtor’s
character, honesty, past record and his managerial ability.
9. No use if ratios are worked out for insignificant and unrelated figures
Accounting ratios may be worked for any two insignificant and unrelated figures as ratio
of sales and investment in government securities.

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REVISION PARTNER 154
Such ratios may be misleading. Ratios should be calculated on the basis of cause and
effect relationship. One should be clear as to what cause is and what effect is before
calculating a ratio between two figures.

b)
Majengo Ltd
2012 2013
i) Gross profit margin
, ,
x 100 × 100 = 40% × 100 = 50%
, ,

Net profit margin

ii) , ,
x 100 ×100 = 10% ×100 = 20%
, ,

iii) Trade receivables turnover

, ,
= 4 days = 5 days
, ,

Acid test ratio

iv) , , , ,
= 0.6:1 = 0.6:1
, ,

v) Dividend cover
− , ,
=1 =2
, ,

vi) Gearing ratio

x 100 ×100 = 57.91% ×100 = 50.5%

vii) Return on capital employed (ROCE) , ,

× 100 = 7.72% × 100 = 20.20%
, ,

May 2014 Question Four

QUESTION 3
a) Statement of cash flow
Soy Ltd
Cash flow statement for the year ended 31 March 2013
Sh. ‘000’ Sh. ‘000’
Operating Activities
Net profit before tax 7,200
Add interest (W3) 630
Net profit before tax and interest 7,830
Add: Depreciation 3,450

Impairment of goodwill (W9) 300

Profit on sale of investment (480)
Profit on disposal of plant and machinery (2,160)
8,940
Increase in inventory (4,050)
Decrease in trade receivables 4,980

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REVISION PARTNER 155

Increase in trade payables 1,800

11,670
Taxation paid (W1) (2,040)
Cash flows from operating activities 9,630
Investment activities
Purchase of freehold land and building (W6) (900)
Purchase of plant and machinery (W5) (7,530)
Proceed for sale of plant and machinery (W4) 4,410
Income from investment 930
Cash flows from investing activities (3,090)
6,090
Financing activities
Issue of shares 9,000
Share premium 2,250
Interest paid (630)
Dividends paid (450)
Loan repayment (W2) (4,500)
Cash flows from financing activities 5,670
Increase in cash and cash equivalents 11,760
Cash and cash equivalent at start (1,290-19,620) (18,330)
Closing cash and cash equivalent at end of the year (600-7,170) (6,570)

Workings
W1
Taxation A/c
Shs ‘000’ Shs ‘000’
Bank 2,040 Balance b/d 1,800
Balance c/d 2,460 Appropriation 2,700
4,500 4,500

W2
Loan A/c
Shs ‘000’ Shs ‘000’
Bank 4,500 Balance b/d 2,700
Balance c/d 2,250 _____
2,700 2,700

W3
Interest A/c
Shs ‘000’ Shs ‘000’
Bank 630 Balance b/d 3,780
Balance c/d 3,150 ____
3,780 3,780

W4
Plant and machinery disposal A/c
Shs ‘000’ Shs ‘000’
Plant and machinery 9,000 Provision for dep. 6,750
Income statement 2,160 Bank 4,410
11,160 11,160

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REVISION PARTNER 156
W5
Plant and Machinery A/c
Shs ‘000’ Shs ‘000’
Balance b/d 19,050 Disposal 9,000
Bank 7,530 Balance c/d 17,580
26,580 26,580

W6
Freehold land and building A/c
Shs ‘000’ Shs ‘000’
Balance b/d 36,000
Revaluation 13,500
Bank 900 Balance c/d 50,400
50,400 50,400
W7
Investment A/c
Shs ‘000’ Shs ‘000’
Balance b/d 11,250 Disposal 450
Purchase of investment 450 Income statement 480
- Balance c/d 10,800
11,730 11,730
W8
Goodwill A/c
Shs ‘000’ Shs ‘000’
Balance b/d 8,700 Impairment 1,260
Impairment 960 Balance c/d 8,400
9660 9,660
W9
Impairment A/c
Shs ‘000’ Shs ‘000’
Goodwill 1,260 Goodwill 960
- Balance c/d 300
1,260 1,260

W10
Increase in cash and cash equivalents
2012 2013
Shs ‘000’ Shs ‘000’ Shs ‘000’
Cash and cash equivalent at start 1,290 600 (690)
Overdraft (19,620) (7,170) 12,450
(18,330) (6,570)
Increase in cash and cash equivalents 11,760

b) Categories of financial ratios

i. Current Ratio (or Working Capital Ratio)
This is the most widely used ratio. It is the ratio of current assets to current liabilities.
It shows a firm’s ability to cover its current liabilities with its current assets. It is
expressed as follows:
Current Ratio =

ii. Liquid (or Acid Test or Quick) Ratio

This is the ratio of liquid assets to liquid liabilities. It shows a firm’s ability to meet
current liabilities with its most liquid (quick) assets. It expressed;-
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REVISION PARTNER 157

Liquid Ratio = ( )

iii. Debt equity Ratio

This ratio is calculated to measure the relative proportions of outsiders’ funds and
shareholders’ funds invested in the company.
This ratio is determined to ascertain the soundness of long term financial policies of
that company and is also known as external-internal equity ratio. Expressed as;-

Debt Equity Ratio =

May 2013 Question Four

QUESTION 4
c) Explain four limitations of ratio analysis
The following are the main limitations of accounting ratios:
∑ False results if based on incorrect accounting data
Accounting ratios can be correct only if the data (on which they are based) are correct.
Sometimes, the information given in the financial statements is affected by window
dressing i.e. showing position better than what actually is. For example, if inventory
values are inflated or depreciation is not charged on fixed assets, not only will one have
an optimistic view of profitability of the concern but also of its financial position.
So the analyst must always be on the lookout for signs of window dressing, if any.
∑ No idea of probable happenings in future
Ratios are an attempt to make an analysis of the past financial statements: so they are
historical documents. Now - a- day’s keeping in view the complexities of the business, it
is important to have an idea of the probable happenings in future.
∑ Variation in accounting methods
The two firms’ results are comparable with the help of accounting ratios only if they
follow the same accounting methods or bases. Comparison will become difficult if the
two concerns follow the different methods of providing depreciation or valuing stock.
Similarly, if the two firms are following two different standards and methods, an analysis
by reference to the ratios would be misleading.
Moreover, utilization of inbuilt facilities, availability of facilities and scale of operation
would affect financial statements of different firms. Comparison of financial statements
of such firms by means of ratios is bound to be misleading.
∑ Price level changes
Changes in price levels make comparison for various years difficult. For example, the
ratio of sales to total assets in 1998 would be much higher than in 1978 due to rising
prices, fixed assets being shown at cost and not at market price.
∑ Only one method of analysis
Ratio analysis is only a beginning and gives just a fraction of information needed for
decision making. Therefore, to have a comprehensive analysis of financial statements,
ratios should be used along with other methods of analysis.
∑ No common standards
It is very difficult to lay down a common standard for comparison because circumstances
differ from concern to concern and the nature of each industry is different. For example, a
business with current ratio of more than 2:1 might not be in a position to pay current
liabilities in time because of an unfavorable distribution of current assets in relation to
liquidity.
On the other hand, another business with a current ratio of even less than 2:1 might not be
experiencing any difficulty in making the payment of current liabilities in time because of
its favorable distribution of current assets in relation to liquidity.
CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP
REVISION PARTNER 158

∑ Different meanings assigned to the same term

Different firms, in order to calculate ratio may assign different meanings. For example,
profit for the purpose of calculating a ratio may be taken as profit before charging interest
and tax or profit before tax but after interest or profit after tax and interest.
This may affect the calculation of ratio in different firms and such ratio when used for
comparison may lead to wrong conclusions.
∑ Ignores qualification factors
Accounting ratios are tools of quantitative analysis only. But sometimes qualification
factors may surmount the quantitative aspects.
The calculations derived from the ratio analysis under such circumstances may get
distorted.
For example, though credit may be granted to a customer on the basis of information
regarding his financial position, yet the grant of credit ultimately depends on debtor’s
character, honesty, past record and his managerial ability.
∑ No use if ratios are worked out for insignificant and unrelated figures
Accounting ratios may be worked for any two insignificant and unrelated figures as ratio
of sales and investment in government securities.
Such ratios may be misleading. Ratios should be calculated on the basis of cause and
effect relationship. One should be clear as to what cause is and what effect is before
calculating a ratio between two figures.
November 2012 Question Five C

QUESTION 5
a) Three reasons why in many organisation’s the cash flow for a given period differs
from the profit realised by the organisation
∑ The cash flow statement will include cash for the buying and selling of assets but the
income statement wont thus bringing about the difference in the cash flow and
retained earnings.
∑ Distributions don’t show up on income statement when computing profit realised but
do show up on a cash flow statement. This leads to a difference in the cash flows and
retained earnings in a given organisation.
∑ The cash flow statement includes the changes in the working capital. This brings
about difference since these changes are not included in the computation of retained
earnings.

November 2012 Question Two A

QUESTION 6
BIG BEN Limited
Statement of cash flows for the year ended 30th September 2011 as per
Sh. ‘000’ Sh. ‘000’
Cash flows from operating activities
Net profit before tax and interest 12,420
Add interest 100
Net profit before tax 12,520
Depreciation 438
Les of sales of plant item 690
14,148
Increase in inventory (2,070)
Increase in trade receivables (898)
Increase in trade payables 1,380
12,560
Taxation paid (w2) (4,140) 8,420
Investing activities
Purchase or premises (w1) (25,200)
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 REVISION PARTNER 159
Proceeds from sales of plant item 1,500
Cash flow before financing 2,070 (21,630)
(13,210)
Finance activities
Issues of share at premium 16,560
Redemption of debentures (4,260)
Interest paid (100)
Dividends paid (1,380) 10,820
Decrease in cash and cash equivalent (2,390)
Add cash equivalent at start 1,700
Cash and equivalent at end (690)

Workings
W1
Property plant and equipment account
Sh. ‘000’ Sh. ‘000’
Balance b/d 38,180 Disposal 2,760
Bank 25,200 Loss on disposal 690
Accumulated dep. 1,380
Depreciation 938
Balance c/d 57,612
63,380 63,380
W2
Taxation account
Sh. ‘000’ Sh. ‘000’
Bank 4,140 Balance b/d 3,450
Balance c/d 4,140 Appropriation 4,830
8,280 8,280

May 2012 Question Four

QUESTION 7
a)
Three profitability rations JANET RUTH
i 1. Return on capital employed (ROCE)
Net profit before interest and tax = 8,640×100% ; 7700×100% 7% 12.6%
Capital employer 123,500 61,200
2. Net profit margin
Net profit x 100 = 8,640×100% ;7,700×100% 6% 5.5%
Sale 144,000 140,000
3. gross profit margin
Gross profit x 100=24,000×100% ; 20,000×100% 16.7% 14.3%
Sales 144,000 140,000
4. expenses to sales =15360×100% ; 12,300×100%
144,000 140,000 10.7% 8.8%
Current ratio
ii Current assets : current liabilities 4.5:1 0.9:1%
= 69,750: 15,500: 27,360 30,400

iii Acid test ratio 2.4:1 0.7:1

Current assets: Inventory: Current liabilities
= 69,750 – 32,000: 15,500; 27,360 – 4,800: 30,400
Inventory turnover ratio
iv Cost of sales = 120,000 ; 120,000 4 times 30 times
Average inventory (28000+32000)/2 (3200+4800)/2
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 REVISION PARTNER 160

Total assets turnover ratio:

v = sales 144,000 : 140,000 1.17 times 2.29
Total assets 123,500 61,200 times

vi Account receivable turn over ratio 73 times 29.2

= receivable x 365=28,800 x 365 x 11,200 x 365 times
Sales 144,000 140,000

b) Ruth’s business has a higher return, on the capital employed than Janet’s business
although the latter business has higher margin.

Janet has a better liquidity which is above the desired industry ratio as reflected by the current
ratio (ideal 2:1) and acid test ratio (ideal 1:1). The liquidity ratios for Ruth are below the
desired industry average ratios.

Although Ruth’s operations appear to be more profitable (see ROCE) she has a negative
working capital. The inventory turnover for Ruth is quite impressive compared to that of
Janet.
May 2011 Question Four

QUESTION 8
Chakaza Ltd
Statement of Cash flows
For the year ended 30 June 2010
Cash flows from Operating Activities Sh ‘000’ Sh. ‘000’
Net profit after tax 6,210
Adjustments:
Depreciation(w8) 4,312
Premium on redemption of debentures 138
Loss on disposal 345
4,795
Changes in working capital:
Increase in inventory (1,035)
Increase in trade receivables (449)
Increase in trade payables 690
Gross operating cash flows 4,001
Less: tax paid(w4) (2,070)
Net cash from operating activities 1,931

Investing activities
Purchase of assets(w1) (11,730)
Sale of equipment (w3) 1,035
Purchase of buildings(w7) (2,760)
Purchase of motor vehicles (918)
Cash from investing activities (14,373)

Financing Activities
Issue of shares(w6) 8,280
Redemption of debentures (1,518)
Dividends paid(w5) (1,725)
Net cash from financing activities 5,037
Cash and cash equivalents for the year (1,195)
Cash and cash equivalents b /d 850
Cash and cash equivalents c/d (345)

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REVISION PARTNER 161
Workings
W1
Plant & equipment A/C
Shs ‘000’ Shs ‘000’
Balance b /d 13,800 Disposal 2,070
Cash book 11,730 Balance c/d 23,460
25,530 25,530
W2
Accumulated Depreciation A/C
Shs ‘000’ Shs ‘000’
Balance c/d 2,932 Balance b /d 2,070
- Income Statement 862
2932 2,932
W3
Disposal A/C
Shs ‘000’ Shs ‘000’
Equipment 2,070 Cash book 1,035
- Income statement 345
2,070 2,070
W4
Tax A/C
Shs ‘000’ Shs ‘000’
Cash book 2,070 Balance b /d 1,725
Balance c/d 2,070 Income statement 2,415
4,140 4,140
W5
Dividend A/C
Shs ‘000’ Shs ‘000’
Cash 1,725 Balance b /d 1,035
Balance c/d 1,035 Income statement 1,725
2,760 2,760
W6
Issue of shares
Shs ‘000’ Shs ‘000’
Share capital 6,900 Cash received 8,280
Share premium 1,380 -
8,280 8,280
W7
Buildings a/c
Shs ‘000’ Shs ‘000’
Balance b/d 11,040 Balance c/d 13,800
Cash 2,760 -
13,800 13,800
W8
Cumulative depreciation during the year
Sh.
Building 345,000.00
Plant and equipment 2,415,000.00
Motor 862,000.00
Disposed equipment 690,000.00
4,312,000.00

December 2010 Question Four

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REVISION PARTNER 162

TOPIC 11
FINANCIAL STATEMENTS OF PUBLIC SECTOR
ENTITIES

QUESTION 1
(a) Purposes of public sector accounting
∑ To create a standard expectation of ethics and accountability for a nation’s financial
information.
∑ It assists in public sector budgeting.
∑ It helps in the establishment of a public governance system which enhances
discipline decision making by those in charge of state affairs.
∑ It enables the public assess whether there is value for money submitted as a result of
the taxes paid to the state.
November 2014 Question Four A

QUESTION 2
(b)

ITEM DETAILS APPROVED ACTUAL

Estimate Expenditure
Sh '000' Sh '000'
0300 Transport 76,500 73,100
0301 Travel & subsistence 88,400 86,700
0500 Personal emoluments 102,000 96,900
0700 Electricity expenses 81,600 76,500
0900 Purchase of equipment 166,600 166,600
0400 Other allowances 116,960 113,390
G.A.V 632,060 613,190
A.I.A (133,960) (125,800)
Exchequer 498,100 487,390

i) General account of vote a/c ii) Exchequer a/c

Sh. Sh. Sh. Sh.
Expenditure 613,190 Exchequer 127,500 General 127,500 Paymaster 127,500
Appr. in Aid 133,960 account of general
Balance c/d 351,730 votes ______ ______
613,190 613,190 127,500 127,500

iii) Paymaster general a/c

Sh. Sh.
Exchequer 127,500 Expenditure 613,190
Appropriation in aid
Balance c/d 133,960
351,730 ______
613,190 613,190
May 2014 Question Three B

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REVISION PARTNER 163
QUESTION 3
b)
(i) Journal entries
Sh.000 Sh.000
General fund account 16,000
Capital project fund account 16,000
Being transfer from the general fund to capital fund
account
6,400
Planning and architect fees account 6,400
Cash account
Being planning architect fees paid
152,000
City hall building account 152 000
Commitment/contractor account
Being contract award for city hall building
80,320
Cash account 80,000
6.5% bond account 320
Debt service fund
Being sale of 6.5% bond and transfer to service fund
76,000
Commitment/contractor account 68,400
Cash book 7,600
Retentions
Being payment to the contractor

ii) Statement of revenue and expenditure

Uzuri County Council
Statement of revenue and expenditure for the construction of city hall for the
year ended 30 June 2013
Sh.000 Sh.000
Revenue:
Bond issue 80,000
Government grant 64,000
General fund transfer 16,000
160,000
Other revenue:
Bond premium 320 160,320
Expenditure:
Planning and architects fees 6,400
Contractor expenditure/commitment 152,000 (158,400)
Surplus 1,920

iii) Statement of financial position

Uzuri County Council
Statement of financial position as at 30 June 2013
Building (city hall)
Sh.000
Assets
Building (city hall) 158,400
Cash (80,320 - 6,400 - 68,400) 5,520
163,920
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REVISION PARTNER 164

Financed by:
65% bond issued 80,000
Government grant 64,000
Debt service fund 320
Retention 7,600
Capital project fund balance 12,000
163,920

November 2013 Question Two B

QUESTION 4
a) General account of vote
General account of votes
Sh. ‘000’ Sh. ‘000’
General expenses of sub vote Exchequer 231,700
heads 236,500 Appropriation in aid 15,000
Appropriation in Aid 2,500
Balance c/d 7,700 -
246,700 246,700

b) Exchequer account
Exchequer account
Sh. ‘000’ Sh. ‘000’
General Account of vote 231,700 Paymaster 226,000
- Balance c/d 5,700
231,700 231,700

c) Pay master general account

Paymaster GeneralAccount
Sh. ‘000’ Sh. ‘000’
Exchequer 226,000 General expenses sub vote 236,500
Appropriation in aid 12,500 head 2,000
- Balance c/d -
238,500 238,500

d) Appropriations account

Appropriation Account
Details Estimates Actual Amount Amount
under spent overspent
Sh. ‘000’ Sh. ‘000’ Sh. ‘000’ Sh. ‘000’
Basic salaries 96,000 92,400 3,600 -
Other allowances 18,900 21,420 - 2,520
Utilities, supplies & services 56,300 47,800 8,500 -
Printing & Stationery 12,400 12,100 300 -
Travelling Expenses 42,500 44,700 - 2,200
Training Expenses 9,200 7,300 1,900 -
Maintenance & repairs 2,500 1,880 620 -
Grants to youth 8,900 8,900 ___-___ -_______
Gross Total 246,700 236,500 14,920 4,720
Appropriation in aid 15,000 12,500
Net total 231,700 224,000

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REVISION PARTNER 165
Appropriation in Aid
Sh. ‘000’ Sh. ‘000’
General account of votes 15,000 Paymaster 12,500
- General account of votes 2,500
15,000 15,000

e) Statement of assets and liabilities

Ministry of youth and sports

Statement of assets and liabilities for the year ended 30 June 2012
Assets Sh. ‘000’
Paymaster General 2,000
Exchequer A/c 5,700
7,700
Liabilities
General Account of votes 7,700

May 2013 Question Five

QUESTION 5
a) Appropriations account for the year ended 30 June 2012
Details Approved Actual Amount Amount
estimate expenditure understand overspend
Sh. “000” Sh. “000” Sh. “000” Sh. “000”
Personal emoluments 1,800,000 1,900,000 - 100,000
House allowance 300,000 260,000 40,000 -
Passages & leave 270,000 90,000 180,000 -
Travel and subsistence 400,000 460,000 - 60,000
Electricity & Water 120,000 130,000 - 10,000
Purchase of equipment 1,000,000 800,000 200,000 -
Gross total 3,890,000 3,640,000 420,000 170,000
Aid (300,000) (240,000)
Net total 3,590,000 3,400,000

November 2012 Question Two B

QUESTION 6
b) Explain in the context of public sector accounting
i) Commitment Accounting
This accounting system recognises transactions when the organisation is committed to them.
This means that the transaction is not recognised neither when cash is not paid or received,
nor when an invoice is received or issued but at an earlier stage when orders are issued or
received. Under this system, the organisation is recognising the issue of an order as a
commitment to incur expenditure and accounts continuously record commitments. The main
purpose of commitment accounting is the budgetary control rather than financial reporting.

ii) Fund Accounting

The accounts of a government unit are partitioned into segments called funds, and separate
financial statements are prepared for each fund. A fund accounting system is a collection of
distinct entities or funds in which each fund reflects financial aspects of a particular segment
of the organisation’s activities. Separate funds are used to aggregate activities by functions
because of the diverse nature of the services offered and because it is necessary to comply
with legal provisions regarding activities of the government unit. Although funds are
separate entities, the structure of funds is such that a single transaction may occasion entries
in the accounts of several funds.
May 2012 Question Five B
CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP
REVISION PARTNER 166
QUESTION 7
a) Roles of the International Public Sector Accounting Standards Board (lPSASB).
- Develops high-quality International Public Sector Accounting Standards (IPSASs),
- Provides guidance, and resources for use by public sector entities around the world
for preparation of general purpose financial statements.
- Issue and promote benchmark guidance and facilitate the exchange of information
among accountants and those who work in the public sector.
May 2012 Question Two A

QUESTION 8
b) Meaning of the following terms
i) Appropriation- In- Aid
Appropriation-In-Aid (AIA) is the amount to be generated by the governmental unit from
its internal activities. It is subtracted from the gross estimate (gross vote) to arrive at net
estimate of (net vote) which is approved by Parliament to be released from the consolidated
fund. An A-I-A account may be maintained,
Where: When A-I-A is received from own operations:
Dr PMG Account
Cr A-I-A Account
At the year-end:
Dr A-I-A Account
Cr GAV Account

At the beginning of each year, each governmental unit has an estimated Appropriation-In-
Aid which will guide them on the total amount expected to be generated internally. Thus
the sum of net estimates approved and actual appropriation in aid will constitute the total
funds allocated to each governmental unit. This sum constitutes the credit side of the GAV
account.

ii) Paymaster general

The Paymaster General Account (PMG) is the cash account operated by the individual
governmental units. It records amounts so far withdrawn from the exchequer.
All money approved for a governmental unit is intended to meet a specific purpose. This
means each governmental unit will maintain an expenditure account, in which shall be
recorded debits for various expenses incurred. The corresponding credit is in the PMG
account (cash account). The expenditure account will then be closed to GAV. The
difference between the amount approved by Parliament and total expenditure will then
represent a fund balance, which should be surrendered back to the treasury at year end if
not used.

iii) General Account Of Vote

During a budget speech, the Minister for Finance will give detailed appropriations
(allocations) of funds to different governmental units. Through an appropriation bill, the
Parliament will approve different estimates to individual governmental units. The amount
approved to each governmental unit by Parliament is then recorded into a particular account
known as “General Account of Vote” (GAV). This account therefore records funds
allocated to various governmental units.

iv) Exchequer account

All incomes of the government are received and recorded into an account called the
“Exchequer account”. The total amount available in the exchequer represents the
consolidated fund, i.e. the consolidated fund operates an account called exchequer.
December 2011 Question Five B
CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP
 REVISION PARTNER 167
QUESTION 9
Statements of revenue
For the year ended 30th June 2010
Estimated Actual Over/under
receipts receipts estimate
Sh.‘million’ Sh.‘Million’ Sh.‘million’
Trade licenses 765 875 (110)
Hotel and Restaurant licenses 900 817 83
Export licenses 955 1,403 (448)
Registration of banks 1,050 1,110 (60)
Professional licenses to practice 75 60 15
Mining licenses 1,450 1,625 (175)
Liquor licenses 500 - 500
Second hand clothes licenses 450 475 (25)
6,145 6,365 (220)

May 2011 Question Five B

QUESTION 10
a) Four benefits that would accrue to the government as a result of adopting the
international public sector accounting standards (IPSAS)
i. Use of IPSAS across public sector entities and even government enhance
comparability among the entities and governments.
ii. IPSAS enhance reduced misuse of public funds, increased emphasis on performance
management and transparency thus resources are put to their intended use yielding
improved standards of living and sustainability of economic development.
iii. Enables the government and the public at large to asses performance of public sector
entities i.e. facilitates measurement of efficiency and effectiveness of utilization of
resources and generation of surpluses for future use.
iv. IPSAS improve consistency in preparation of financial information. This will in turn
enable users draw consistent conclusions given similar sets of financial statements.

b) Explain recurrent expenditure and development expenditure

Recurrent Expenditure
This is expenditure on the day to day business of the government. In commercial
accounting, it could be called revenue expenditure.
Recurrent expenditure may be referred to as maintenance expenditure as it covers items
concerning the maintenance and operation of existing government services e.g. salaries to
government officers, electricity, water, telephone etc.
Development Expenditure
This is expenditure concerning new projects e.g. construction of hospitals, roads, bridges
etc

c) Case for and against the use of accrual basis of accounting in the public sector
The case for the use of accrual basis of accounting in the public sector is as follows:
i) All the liabilities of the government as at the end of the fiscal year are known.
ii) Public asset are known and the expenditure spent in developing those asset is also
known.
iii) Using the accrual basis of accounting, income and expenditure are with greater
certainty.
The case against accrual basis of accounting in the public sector is as follows:
i) Should properties, plant and equipment be revalued at fair value, if so what is fair
value?
ii) It is difficult to estimate the useful life of assets such as roads, airports, bridges.
Hence the valuation of assets becomes exceed difficult

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REVISION PARTNER 168
d) Importance of using accounting standards as the basis for preparing financial
statements
Understandability
One advantage of using accounting standards involves the ease of understanding the
financial statements. Financial statement users expect companies to follow the published
accounting standards when creating financial statements. These users rely on the
assumptions set forth in the accounting standards when interpreting the results reported.
The users interpret the financial statements of different companies using the same
assumptions. Once the users understand these assumptions, they use this knowledge
when reading any financial statement.

Guidance
Another advantage of using accounting standards concerns the guidance provided to
accountants. When financial reporting issues arise, the accountant may refer to the
published accounting standard to determine how to record the event. These issues
include new accounting transactions arising from technology, such as Internet sales, or
new actions incorporated by the company, such as changes in pension plans. The FASB
incorporates the needs of financial statement users as well as company feedback when
creating accounting standards. This process allows the accountant to trust that the
guidance provided through the accounting standard passed the rigorous process of
ensuring that it meets everyone's needs.

Greater Comparability
Companies that use the same standards to prepare their financial statements can be
compared to each other more accurately. This is especially important when comparing
companies located in different countries, as they might otherwise be using different rules
and methodologies to prepare their statements. This increase in comparability has helped
investors better determine where their investment dollars should go.
December 2010 Question Five

"Success usually comes to

those who are too busy to be
looking for it."

CPA SEC 1-FA, LAW AND ENTREPRENEURSHIP